Company selling goodwill

Company selling goodwill

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My client trades as a limited company and is wanting to retire. He has been offered a deal where he will sell the goodwill of his business to a competitor.

I assume the company will get a CT charge for 19% of the sale proceeds unless the goodwill was originally purchased. Is that correct?

If the goodwill was originally purchased under the old rules there will have been no deduction for its write off so I assume we can bring the cost back and just subject the indexed gain to a 19% charge. Is that correct?

I have a vague idea that at one time the gain would be adjusted for the difference between CT and CGT tax rates. Am I correct in thinking that that has long gone with the 52% rate?
David Witham

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By User deleted
25th Jul 2006 10:52

A straight CT charge
Yes, your assumptions are all correct. A capital gain is aggregated with all other profits and charged the same (could be 30% ). So we have a double whammy; company sells asset/s and then has to be liquidated so shareholder can get at his money, meaning a CT and a CGT hit. Any chance of the shares being sold? OK, the intending purchaser can, among other things, point to an inherent tax liability on goodwill thus reducing the net asset worth on which the individual share price is based. But even the Shares Valuation experts recognise that , in real life, a 100% deduction for the potential tax bill is illogical. After all , the probability is that the disposal of goodwill will not take place for years and, if and when it does happen, a roll-over claim into other goodwill is prima facie available. You might, David, be able to argue the discount down to 20%-30% of the latent liability. Could mean more in the client's pocket especially if, subsequently, the ESC 16 route is taken.

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