Mother Gifting Business (& its assets) to Children

Mother Gifting Business (& its assets) to Children

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Mother owns and runs a beauty salon and solarium (as a sole trader), profit of around £12k pa, turnover of around £40k. Mother ceases self employment and gifts the business assets (current market value of around £10k) to son and daughter who will register a partnership and run a similar business from the same location, the property lease is also assigned.

What are the tax considerations with this disposal?

How are the aforementioned assets taken into the new partnership (how will they look on the balance sheet, etc.)?

Does goodwill need to be valued and considered?

Replies (4)

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By JCresswellTax
16th May 2016 09:53

As an accountant/advisor do you have any thoughts at all on how this should be treated?

Or do you just want us to do your job for you?

Thanks (2)
paddle steamer
By DJKL
16th May 2016 10:28

Re goodwill, what goodwill. If mother was knocking her socks of for £12,000 p.a. return (likely below minimum wage) I would not consider there is any goodwill, of course if she makes that after paying a manageress to run the business, her investment being passive, maybe there is something there.

Re tax consequences the OP needs to be a little bit more forthcoming re what the assets are to consider their tax consequences.

Was it deliberate planning to trigger a discontinuance, was the idea of taking on children as partners ever considered, if not why not?

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By Ian McTernan CTA
16th May 2016 11:49

So, mother has transferred the business to son and daughter. That's what has actually happened. Market value applies to the disposal (and also helps in future for son and daughter) so you need to work out the value of the business transferred. Or are they seriously trying to contend that current client base won't be transferred over, etc?
After annual exemption it sounds like ER will apply to the gain on disposal, so assuming a £20,000 price tag (£10k assets, 10k goodwill) tax would be around £800 and everyone can sleep easily.
Watch out for any charges on disposal of the assets on the capital allowances side and make any necessary elections there.

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Replying to Ian McTernan CTA:
paddle steamer
By DJKL
16th May 2016 12:15

How on earth do we know the composition of the assets sold, they are possibly more likely to be be plant/equipment than assets subject to CGT, we cannot know ER is on point as we have no idea there are any assets subject to CGT in the first place.

And, if (we are not told) a sole trader has been working full time in a business for £12k profit per year I would possibly be hard pressed, on any metric or calculation, and having normalised the trade for appropriate wage costs, to arrive at any value for the business.

Where is the goodwill or what does one mean by goodwill?

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