Another goodwill question .......

Another goodwill question .......

Didn't find your answer?

We act for a manufacturing business which commenced trading before 1 April 2002. The business was originally a partnership carried on by father and son. In 2010, 2 new partners were admitted, the father's brother-in-law (only related by marriage) and the brother-in-law's son (i.e. the father's nephew). After about 3 months, the two original partners left and were paid market value for their interest in the partnership including goodwill. The partnership has continued to trade and incorporated about 18 months ago.

We are now preparing the first accounts for the company and there is a question mark over whether tax relief can be claimed on the amortisation of goodwill. This was clearly in existence at 1 April 2002 but was it acquired from a related party who held it on that date? The company is related to the brother-in-law and nephew but they didn't hold the goodwill at 1 April 2002. Are they caught as (extended) relatives of the owners at 1 April 2002? Does it make a difference that they had already been in partnership with the original owners for 3 months when they acquired the goodwill?

Hopefully someone can help as I can't seem to get a definitive answer on this.....

Many thanks

Replies (4)

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Portia profile image
By Portia Nina Levin
23rd Sep 2014 10:30

I think you can claim

CTA 2009, section 884 says, "Goodwill is treated as created before (and not on or after) 1 April 2002 in a case in which the business in question was carried on at any time before that date by the company or a related party."

The related parties (to the company) are the participators and any associates of theirs. Brothers-in-law and uncles do not satisfy the definition of relative and so are not associates of the participators.

The only time that the business was carried on by the participators (or their associates) was from 2010 onwards, in my opinion.

Thanks (1)
Replying to johnhemming:
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By mrs merton
23rd Sep 2014 13:30

Are partners associated?

Thank you for this which is reassuring as I was thinking along similar lines. My only concern is that they were all partners in 2010 when the goodwill was acquired. The original partners (the father & son) are therefore associates of the participators at the point when the latter acquired the goodwill but not at the point when it was sold to the company. Is that still ok, in your opinion?

Many thanks

 

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Portia profile image
By Portia Nina Levin
24th Sep 2014 10:03

Yes

The former parties cannot be related parties (with respect to the company), because at the time that they were partners of the current partners, the company did not exist.

I agree that it is not clear though, so whatever interpretation you choose should be disclosed by way of a note in your corporation tax computations.

Thanks (1)
Replying to Duggimon:
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By mrs merton
26th Sep 2014 14:39

Thank you

Many thanks for this. I really appreciate your input.

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