What you're actually transferring
When you incorporate a sole-trader freelance business as a limited company, you often transfer existing assets — equipment, goodwill (client relationships and reputation), any accumulated IP — into the new Ltd. The tax treatment of that transfer isn't trivial: it can trigger CGT, VAT (if registered), and stamp duty depending on what's transferred and how. This guide walks through the mechanics with a focus on the incorporation-of-sole-trader scenario.
What you're actually transferring
In a typical freelance incorporation, three asset categories move: (1) tangible business equipment (laptop, camera, tools), (2) any intellectual property (client contracts, IP developed, templates), and (3) goodwill — the reputation-based value of the business. The company effectively 'buys' these from you personally.
The transfer creates a disposal for you as the seller (potentially CGT event) and a purchase for the Ltd (which then depreciates or amortises them). The consideration can be cash, shares in the new Ltd, or a director's loan credit.
Incorporation Relief (Section 162)
Section 162 TCGA 1992 provides Incorporation Relief when you transfer 'the whole assets of a business' (or all assets other than cash) to a company in exchange for shares. The chargeable gain is rolled over into the base cost of the shares — no CGT payable on the transfer.
Conditions: transfer must be of a going-concern business (not just assets), consideration must be shares (not cash or loan), and the transfer must involve substantially all business assets. Cash and personal-use items can be excluded.
Goodwill: the biggest complication
For a service-based freelance business, goodwill is often the largest asset by value — potentially far more than physical equipment. Historically, freelancers claimed goodwill as £30-£60k on incorporation, generating a CGT bill on the transfer (offset by BADR/Entrepreneurs' Relief) but creating a Ltd amortisation deduction.
This was heavily restricted in 2015 and again in 2019. For incorporation post-July 2015, corporation-tax relief on goodwill amortisation is capped or zero in many cases. For 2019+ incorporations, the intangible-fixed-assets regime allows relief only in limited circumstances. Consequence: transferring goodwill on incorporation is often net-negative under current rules for typical freelance service businesses.
Worked example
Priya transfers her freelance design business to a new Ltd. Equipment: laptop, monitor, tablet, camera worth £4,000 at market value. Goodwill: estimated £15,000 based on 2 years of client-relationship history and portfolio value. Route A (Incorporation Relief via Section 162): all assets including goodwill transferred to Ltd in exchange for 100 £1 shares. No CGT payable — gains rolled into share base cost. No goodwill amortisation available under current rules, so no CT relief either. Clean and simple. Route B (Sale for cash/loan): sells assets to Ltd for £19,000 recorded as director's loan. Personal CGT on £15,000 goodwill gain (offset by BADR at 10%). Ltd cannot deduct amortisation of goodwill under current rules. Route A usually wins for freelance-scale incorporations.
Reference table
| Asset | Transfer treatment | Tax note |
|---|---|---|
| Physical equipment | Sold to Ltd at market value | Capital allowances continue in Ltd |
| Client contracts (assignable) | Assigned to Ltd | Consent required from clients |
| Business bank cash | Excluded from transfer typically | Extract personally first |
| Goodwill | Complex — often via Incorporation Relief | No CT amortisation relief post-2019 |
| Existing business debts | Transferable with consent | Novation required from creditors |
| Website / domain / brand | Sold to Ltd at market value | Track as intangible asset |
Incorporation asset transfer checklist
- List every business asset and estimate market value
- Decide: Section 162 Incorporation Relief or cash/loan sale route
- Client contract assignments/novations — get consent from clients
- VAT registration if incorporating a VAT-registered sole trader (transfer of going concern)
- Draft an asset transfer agreement (even one-page) documenting the transfer
- Update accounting records on both sides — sole trader closing balance sheet + Ltd opening
- Notify insurers, banks, and suppliers of the change
- Cancel sole-trader HMRC registration once the year's Self Assessment is filed
For Section 162 Incorporation Relief, yes — 'whole assets of the business'. You can retain personal items and cash. For a sale/loan route, no — you can transfer selectively.
For anything above modest amounts, yes. HMRC scrutinises goodwill valuations aggressively. Independent valuation (or clear DIY methodology) protects against enquiry challenge.
If the incorporation is a transfer of going concern, the Ltd can inherit the VAT number (VAT68 election) or the Ltd can register fresh and the sole trader deregisters. The going-concern route often preserves quarter-return continuity.
Yes — you can sell assets to the Ltd at market value, taking a director's loan credit for the amount. This can be repaid over time. But it forfeits Section 162 relief and creates a CGT event on the transfer.
Recommended for anything beyond simple asset transfers. Client contract assignments, IP transfers, and any real estate need proper legal documentation. Freelance-scale simple cases often manageable with accountant-drafted transfer agreements.
Sources & official references
Related on FreelanceToolkit UK
This guide is general information based on UK rules for the 2025/26 tax year. It is not personal tax or legal advice. For decisions affecting your tax position or legal exposure, consult a qualified accountant or solicitor.