For a consultant or GP who has built up genuinely private work, moving that practice into a limited company can make sense for retained earnings, asset protection, family shareholder planning or managing the annual allowance taper. What catches people out is that incorporating is itself a tax event. Transferring a business that includes goodwill to a company is a disposal of that goodwill, and it can crystallise a capital gain even though no cash leaves your pocket. Section 162 incorporation relief is the mechanism that defers that gain. This guide explains how the relief works, the conditions you have to meet, the Finance Act 2026 change that turns it into a claimed relief from 6 April 2026, and the medical pension trade-off that means the tax saving is never the whole story.

When this applies (private practice only)

The first thing to be clear about is scope. Incorporation is a private-work decision. A limited company cannot hold an NHS GMS or PMS contract, and company income is not NHS-pensionable. So section 162 incorporation relief is relevant to the private side of a medical career, the self-pay clinics, aesthetics, medico-legal and expert-witness work, occupational health and private consultant practice, and not to an NHS GP list. The sale of NHS practice goodwill has been prohibited since 1 April 2004, so there is no NHS goodwill to incorporate in the first place. We cover that in detail in our guide on whether GP practice goodwill can be sold.

Within the private practice, here is the CGT problem that incorporation creates. When you transfer a business to your own company, you and the company are connected persons, so the assets are treated as transferred at market value rather than at whatever paperwork value you choose. The most valuable asset is usually the goodwill, the earning power and reputation of the private practice. Transferring it to the company is a disposal at market value, which can produce a substantial chargeable gain, even though you have not received any cash and have simply changed the wrapper around your own business. Section 162 is the relief that stops that gain being taxed on day one.

How section 162 incorporation relief works

The core mechanic is a roll-over. When you transfer the business as a going concern to a company wholly or partly in exchange for shares, the gain on the transferred assets is not taxed at the point of transfer. Instead, it is deducted from the base cost of the new shares you receive. So if the private goodwill carries a gain, that gain reduces what the shares are treated as having cost you. The tax is parked, not cancelled.

A deferral, not an exemption

This is the point most worth labouring. Section 162 defers the gain, it does not wipe it out. Because the gain is subtracted from the base cost of the shares, those shares now have a lower base cost, which means a larger gain when you eventually sell or wind up the company (unless a further relief applies then). Treat the relief as a timing benefit. It can be a very valuable one, particularly if you have no near-term intention of selling the shares, but you should always model what the eventual share disposal might look like before you rely on it.

The wholly or partly for shares apportionment

How much of the gain is deferred depends on what you take in return for the business. If the consideration is wholly shares, the whole gain can be deferred. If the consideration is partly shares and partly something else (cash, or a credit to a director's loan account), only the share proportion of the gain is deferred and the balance is chargeable now. In broad terms, the part of the gain that is deferred is the proportion that the value of the shares received bears to the total consideration. The arithmetic rewards taking the consideration mainly in shares if deferral is the goal.

Interaction with the director's loan account

There is a genuine trade-off here. Some doctors are tempted to take part of the consideration as a credit to a director's loan account, because that creates a balance they can draw down later without further tax. The catch is that doing so reduces the share consideration, and so reduces the amount of gain that section 162 defers. You are effectively choosing between maximising the CGT deferral and creating a tax-efficient drawdown account. The extraction mechanics sit alongside the wider profit-extraction picture, which we cover in our notes on the benefits and drawbacks of a medical limited company and the step-by-step incorporation process.

The conditions you have to meet

Section 162 is not automatic in the sense of applying to any transfer you fancy. The legislation sets out conditions that must all be satisfied.

A business transferred as a going concern

There must be a genuine business, transferred as a going concern. Holding investments, or a loose collection of assets that does not amount to a business, will not qualify. For a private medical practice this is usually straightforward, an active clinic or consulting practice with patients, income streams and goodwill is a business, but it still needs to be transferred as a live operation rather than wound down and reconstituted.

All the assets of the business (cash may be excluded)

Either all of the assets of the business, or all of them except cash, must be transferred to the company. You cannot cherry-pick which assets go in and still claim full relief. Cash can be kept back, which is helpful, but the working assets and the goodwill have to move across as a package.

Consideration wholly or partly in shares

The transfer must be wholly or partly in exchange for shares issued by the company to you as the transferor. Shares are the mechanism that carries the deferred gain, which is why the consideration mix drives how much relief you get. If nothing comes back as shares, section 162 has nothing to roll the gain into.

Goodwill valuation matters

Because the transferred private goodwill sets both the deferred gain and the future base cost of the shares, its valuation is not a formality. HMRC can and does challenge unsupported goodwill figures, so the value needs to rest on a proper commercial assessment of the private income, its durability and the basis on which it would change hands between unconnected parties. Medical goodwill valuation is specialist work, and a number borrowed from a different sector (for example a dental or generic business multiple) is not a safe starting point. Get the valuation right before anything else, because errors here flow through every later calculation.

The Finance Act 2026 change (this is the new bit)

The most important development, and the part generalist guidance may not yet reflect, is that Finance Act 2026 section 39 changed how section 162 works for transfers of a business made on or after 6 April 2026. If you are incorporating a private practice around that date, this matters a great deal.

It is no longer automatic, you must claim it

Before 6 April 2026, section 162 applied automatically where the conditions were met. You did not have to ask for it; if anything, you had to elect out if you did not want it. From 6 April 2026, that is reversed. The relief now applies only if you make a claim in respect of the transfer. No claim, no deferral. This is a genuine trap for the unwary, because someone who incorporates assuming the old automatic treatment, and then never makes a claim, can find the whole gain is chargeable.

The claim deadline

The claim must be made on or before the first anniversary of the 31 January following the tax year in which the transfer took place. Put plainly, for a transfer in the 2026/27 tax year, the claim must be made by 31 January 2029. That looks like a comfortable window, but it is exactly the kind of deadline that slips when an incorporation is treated as a one-off event and then forgotten. The practical discipline is simple: at the point of incorporation, diarise the claim and its deadline, and confirm it has actually been made on the relevant return.

The old section 162A election is gone

Finance Act 2026 section 39 also omits section 162A, the old election to disapply section 162. Under the previous regime, because relief was automatic, you sometimes wanted to switch it off deliberately, for example to crystallise a gain now and use Business Asset Disposal Relief or your annual exempt amount rather than defer. With relief now opt-in by claim, that separate disapplication election is redundant. To not defer, you simply do not claim. The mechanism is cleaner, but it puts the onus firmly on you to make a positive choice.

Before versus after 6 April 2026

The 6 April 2026 transfer date is the dividing line. For transfers before that date, the old automatic basis and the section 162A election still apply. For transfers on or after it, the claim regime applies. If your incorporation straddles the date, the timing of the actual transfer of the business, not loose intentions or preparatory steps, determines which regime governs it, so it is worth being deliberate about the transfer date.

The medical pension trade-off (do not skip this)

Here is the caveat that turns a tax question into a medical one. Company income is not NHS-pensionable, and dividends are never pensionable. For a hospital consultant, only the NHS post is pensionable, so private work routed through a company earns no NHS pension accrual at all. For a GP, a company cannot hold the NHS contract, so the same logic applies to any income taken through the company.

What this means in practice is that you should never look at the section 162 CGT deferral, or the ongoing corporation tax and dividend position, in isolation. Incorporating private work can be the right call for asset protection, for retaining earnings inside the company, for family shareholder planning, or for managing the annual allowance taper by routing private income outside pensionable pay. But it permanently forgoes NHS pension accrual on the income that goes through the company. State the trade-off plainly to yourself: the tax saving on one side, the pension accrual loss on the other, and model both before deciding. Our note on private practice tax and the NHS and private income split works through that interaction.

It is also worth repeating that incorporation does not give you a back door to selling NHS goodwill. The 2019 Regulations block selling shares whose value includes NHS practice goodwill, so section 162 is firmly private-goodwill territory. The NHS list, contract and goodwill stay outside the company.

Section 162 versus the alternatives

Section 162 is one route through the CGT story on incorporation, and it helps to see it next to the alternatives.

Section 162 (this page)

Roll-over of the gain into the base cost of the shares, with the amount deferred driven by the share proportion of the consideration. From 6 April 2026 it must be claimed. It suits a doctor who is continuing the private business through a company and wants to defer rather than crystallise.

Selling outright with Business Asset Disposal Relief

If you are exiting rather than continuing, you may prefer to crystallise the gain now and reduce the rate with Business Asset Disposal Relief, which applies to qualifying private practice or private-company disposals up to a £1 million lifetime limit. The BADR rate is 14% for disposals between 6 April 2025 and 5 April 2026, rising to 18% from 6 April 2026, which itself makes disposal timing a live lever. We cover that route in selling a private medical practice and claiming BADR.

Other reliefs and partial approaches

Other reliefs exist for different facts, for example gift or hold-over relief on certain transfers, and there are partial structuring approaches that mix shares and other consideration. These are fact-specific and beyond the scope of this guide. The headline point is that section 162 is the deferral tool for continuing through a company, while BADR is the rate-reduction tool for selling out, and the decision turns on whether you are carrying on or exiting, and on the pension and extraction picture around it.

Disposal timing and the wider 2026 context

The capital gains tax date of disposal still follows the contract. An unconditional contract is dated when it is made (section 28(1) of the 1992 Act), while a conditional contract is dated when the condition is satisfied (section 28(2)). This matters in two ways for incorporation around 2026. First, where the incorporation date straddles 6 April 2026, the transfer date decides whether the old automatic regime or the new claim regime applies. Second, if you are weighing deferring under section 162 against crystallising now under the rising BADR rate, the disposal date drives which BADR rate applies. Keep the timing deliberate, and see the BADR guide for the rate-band detail.

Practical steps to get section 162 right

Pulling it together, a doctor incorporating private work should work through a short, ordered checklist:

  • Confirm it is genuinely a private business, transferred as a going concern, and that the NHS side stays out (a company cannot hold the NHS contract and NHS goodwill cannot be sold).
  • Value the private goodwill robustly, on a proper commercial basis, ready to support it to HMRC.
  • Decide the consideration mix (shares versus a loan account) with the deferral consequence in mind, because taking value outside shares reduces the relief.
  • For transfers on or after 6 April 2026, diarise the claim and its deadline (the first anniversary of the 31 January following the tax year of transfer), and make sure the claim is actually made. The relief is lost if it is not claimed.
  • Model the NHS pension accrual you give up alongside the corporation tax, dividend and CGT position, so the decision is made on the whole picture rather than the tax saving alone.
  • Take advice. This is a high-value, technical area where valuation, timing and the pension interaction all move the answer.

For the mechanics of forming the company and moving the business across, our step-by-step incorporation guide covers the process, and corporation tax for a medical company covers what the company pays once it is running.

A worked illustration of the apportionment

The numbers below are purely illustrative and rounded to show the mechanic, not a quote for any real practice. Imagine a consultant who has built a private clinic with private goodwill valued at, for illustration, a six-figure sum, and a gain on that goodwill of the same order (the base cost of self-generated goodwill is usually low). If the consultant transfers the business to a company wholly for shares, section 162 can defer the entire gain: it is subtracted from the base cost of the shares, so no CGT is due on incorporation and the shares simply carry a reduced base cost into the future.

Now change one thing. Suppose the consultant instead takes three quarters of the consideration as shares and one quarter as a credit to a director's loan account, to give a pot to draw down later. Broadly, only the share proportion of the gain (three quarters) is deferred, and the remaining quarter is a chargeable gain in the year of incorporation. That chargeable slice can use the annual exempt amount of £3,000 (2025/26) and, if the conditions are met, may qualify for Business Asset Disposal Relief, but it is taxed now rather than rolled over. The illustration shows the trade-off in one place: every pound of value you take outside shares is a pound of gain you bring forward into charge. Whether that is worth it depends on how soon you want the cash and the rate you would pay on it.

Common mistakes doctors make with section 162

A handful of avoidable errors come up repeatedly:

  • Assuming the relief is still automatic. For transfers on or after 6 April 2026 it is not, and a missed claim means the whole gain is taxable now.
  • Letting the claim deadline slip. The claim window (to the first anniversary of the 31 January following the tax year of transfer) feels distant at incorporation and is easy to forget, so it should be diarised on day one.
  • Under-valuing or over-valuing the private goodwill. A weak valuation invites an HMRC challenge and distorts both the deferred gain and the future share base cost.
  • Forgetting that the deferral resurfaces. The relief is a timing benefit, so a later share sale can produce a larger gain; plan the eventual exit, do not just defer and forget.
  • Looking at the tax in isolation. For a doctor the NHS pension accrual given up on company income belongs in the same calculation as the CGT and corporation tax.

How we help doctors incorporate private work

We work with consultants and GPs who are weighing up whether and how to incorporate the private side of their practice. That usually means modelling the section 162 deferral against an outright sale with BADR, getting the private goodwill valued on a basis that will stand up, deciding the consideration mix, and, from 6 April 2026, making sure the incorporation relief claim is diarised and made on time. Just as importantly, we put the NHS pension accrual loss on the same page as the tax saving, because for a doctor the two cannot be separated. Every situation is different, and the right answer depends on your private income, your exit plans and your pension position. If you would like to talk it through, the short form below is the place to start.