Businesses will no longer be able to claim disincorporation relief from 31 March 2018.
The relief is being withdrawn after fewer than 50 businesses attempted to access the scheme 3 years after its launch, despite more than 610,000 UK businesses being eligible.
Disincorporation relief was introduced in April 2013 with the aim of reducing tax barriers faced by small businesses when downsizing from a limited company to a sole trader or partnership.
It was introduced with a ‘sunset’ clause that limited it to a 5-year period, allowing the government to review its effectiveness and choose whether to continue it.
The relief allowed businesses to transfer assets, such as land, buildings and goodwill, worth less than £100,000 to shareholders without being charged corporation tax.
However, the scheme only benefitted companies as it offered no relief for shareholders, who instead faced taxation on any distribution they received.
As a result of the low take-up, it was announced in November 2017 that disincorporation relief would not be extended beyond its March 2018 expiry date.