I am an employed accountant not in practice.........
A relative of mine has asked my advice as they are selling their shop and retiring, they have been trading it for many years and in a sole trader capacity. The sale is agreed in principle as to price. I have told them that they must do a stocktake at date of sale and be careful as to apportioning sale price as between stock and goodwill.
But I do not do this sort of thing very often so is there a brief guide as to the pitfalls or a good book?
I appreciate final accounts will be needed but is Goodwill subject to capital gains tax as the shop lease will be ended and the new owners will start with a new lease the only balance sheet assets are goodwill and stock pretty much.
Any pointers and pitfalls available greatly received, thank you in anticipation,
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Accountant
Who helped him agree on a valuation for the business?
He needs to go and get specialist advice from an accountant who has experience in this type or work
My Aunt was approached by an employee who was interested who knows the shop pretty well.
First I knew was yesterday and told sold subject to new lease................
Some things to consider
It is unusual to agree an all-in price. It is much more common to agree £x for the goodwill and fixed assets, plus stock at cost.Presumably, the sale includes the shop fittings, tills, etc.. The discussion between seller and buyer is usually the apportionment of the price between goodwill and the fixed assets.Did your relative buy the goodwill of the business from someone else when he started? The cost of the goodwill will be deductible from the selling price of the goodwill. If he was running the shop before April 1982, it would be the market value of the goodwill that is deducted from the selling price, rather than the cost (if any).He will be liable to capital gains tax at the reduced entrepreneur's relief rate of 10% on the gain on the goodwill, less the annual exemption of £10,900 (in 2013/14). This means that it is better for him to apportion as much value as possible to the goodwill because he will effectively be liable to income tax at 20% (or 40%) on the value attributed to the fixed assets.
Euan, most helpful, I had forgotten about fixtures and fittings presumably its a case of maximising Goodwill and minimising the stock value being harsh on provisions whilst keeping it realistic, i.e. no stock at £1 F&F at £2 and the rest for goodwill as presumably its not in the interest of the buyer to maximise goodwill on purchase?
thanks
Brendan