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Business transfers in the current climate

What would the MV be for business transfers in the current climate?

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We had a few clients looking at transferring businesses before the world decided to end. Couple of transfers between family members, and one incorporation which involved goodwill. It was proposed to happen on 1 April.

For CGT, these were all taking place between connected parties, and so the MV rule applies. 

The backside has fallen out of these businesses, and income has pretty much dried up fo rthe forseeable future. Imagining your willing 3rd party coming in to buy the businesses on 31 March, busineesses with no current income stream, and lots of costs (including employees, although the 80% thing may help), what would he pay for it? A lot less than he would have 3 months ago, if anything. As an example, nobody is going to pay much for a pub in the current climate.

What are folks thoughts on this? Does the current situation deflate the MV for any connected transfers taking place, or would HMRC look at this as a "blip", and seek to value based on previous trading history (don't see how they could if I'm honest).  

Replies (5)

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By Duggimon
24th Mar 2020 13:41

I think it has to depend on the business. If it has no income now, and nothing imminent for the next three months at least, and severely impacted turnover thereafter, what does it have to offset that?

A loyal or guaranteed customer base, or lease or ownership of property, might give it some expectation of future income, if future income is based entirely on future work done to rebuild the business then it's worth nothing more than net assets.

I wouldn't second guess how HMRC are going to view it, take a pragmatic approach and value it based on what you think it's worth, for a lot of businesses right now that might well be nothing.

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Replying to Duggimon:
Lone Wolf
By Lone_Wolf
24th Mar 2020 14:10

I'm of the view that the business value will have gone down. That view doesn't appear to be popular as it gives the client a worse answer, but I can't see how anyone (outwith maybe supermarkets) can say that their business is worth the same today that it was two months ago.

My main concern is a business in the entertainment industry, which for the foreseeable future can't put on shows. Whilst there will be a customer base to go back to at some point, it will still no doubt have depleted in value.

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Lone Wolf
By Lone_Wolf
24th Mar 2020 14:06

I guess the closest thing to this situation would have been the 2008 crash.

What was the view on this sort of thing during that? I was just a nipper back then so I've no first hand experience.

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paddle steamer
By DJKL
24th Mar 2020 14:19

You are possibly in the territory of Aberdeen Standard Life who announced last week something along the lines that they were ceasing pricing on one of their property funds as current market conditions made it impossible to value commercial property.

I would not disagree with their viewpoint, so if bricks and mortar cannot currently be valued how can something more ethereal like goodwill be valued, to value you have to imagine a marketplace, there is no current marketplace?

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Replying to DJKL:
Lone Wolf
By Lone_Wolf
24th Mar 2020 15:26

Thanks for that DJKL. I too wouldn't disagree. I have suggested things are put on hold until things settle down, but that doesn't look likely to be listened to.

My worry is it gets deemed to be an asset acquired at under value, and deemed a distribution. We're talking in the £millions so it's not pocket change if something goes wrong.

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