Goodwill and Capital Gains

[seancass]

Can any of our accountant friends on the board please advise:

I sold a business last year which has produced a capital gain, most of which was for the goodwill of the business which I built up. Will I be allowed taper relief on this? There is a suggestion that goodwill is a non-tangible asset and therefore not permitted taper relief. Is this right do you think?

Thank you.
Sean

 

[Trader333]

Sean,

I believe that it will depend on how long you have had the business for and if you are able to demonstrate that the value of the business increased and by how much each year over the last 7 years.

I could be wrong though


Paul

 

[FetteredChinos]

Hmm, been a while since i did my tax exams, and what i learnt was corporate tax rather than personal CGT....

but as far as I am aware, the gain is simply:-

(Proceeds-Original Cost) less Indexation allowance. (question is, what Index will the IR be basing their figure on )

I dont think the goodwill comes into it at all. at least on a corporate level anyway.

Kind of makes sense anyway, as the person you sold the business to will be basing future gains on the purchase price (which includes the goodwill you "sold" to them). If not, then the IR would be claiming CGT on the same business several times, each time it is sold.

Hmm, just my 2 cents, and in no way does this constitute professional advice. Just my recollections from days gone by.

I would like to hear from a tax expert in the meantime.

Can you tell i hate being an accountant? lol


FC

 

[FetteredChinos]

http://www.inlandrevenue.gov.uk/pdfs/cgt1_1.htm



there is a link for the IR website. Ive had a brief flick through it, and cannot see anything regarding Goodwill.

Goowill, IMHO is more relevant when producing statutory accounts. Jeremy TaxMan doesnt care about those at all im afraid. Taper relief is however allowed to offset against the gain.

Im afraid you will have to read up to establish what you are entitled to, depending on the length you held the assets.


Hope this helps, and hope you are still awake at the back!

FC

 

[seancass]

Thank you for the replies.

It rather looks as if the rules have changed with the advent of the April 2002 legislation.

The sale of the 'goodwill' of a business acquired, say in the summer of 2001, is, from what I have read this morning, to be treated as income for taxation purposes rather than as a capital gain if the business is sold, say, in the autumn of 2002. Therefore taper relief of 50% cannot be claimed. My accountant is doing his research on it now. He has already stated that goodwill is not a tangible asset and therefore not subject to capital gains (must be treated as income.) I hope I have understood him correctly. In any event, I did not purchase 'goodwill' when I purchased the lease on the premises in which to conduct the business. I subsequently created substantial 'goodwill' to sell on.

Either way the tax man is getting a large cheque!!

Thank you again,
Sean

 

[FetteredChinos]

no worries mate. The IR are just there to take a big slice of our money by hook, and especially by Crook lol.

hope you get it sorted.

In addition, please keep us updated on what your accountant says. Id like to know for future reference.


cheers buddy


FC