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Goodwill on incorporation

Goodwill on incorporation

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A partnership was created to buy an existing business, paying £X for the goodwill and the balance for equipment, from an unconnected party.

The partnership is now making good profits and the partners would benefit from incorporation.

The value of the business is now substantially more than it was when purchased.

Am I correct to presume that tax relief would be available on the difference between the original purchase price and the new value to newco, or would it be disallowed?

Note I wasn't advising when they commenced trading otherwise I would have suggested incorporation prior to the purchase!

Your help greatly appreciated.

Thanks

David

Replies (5)

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By BKD
16th Apr 2013 22:29

When ...

... did the partnership acquire the business?

Thanks (1)
Replying to tom123:
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By dbowleracca
16th Apr 2013 23:22

Post 2002
Hi BKD

I haven't got the exact date to hand, but it was certainly after 2002 when the new rules came in for intangibles.

I think it was 2007.

Thanks

David

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By BKD
17th Apr 2013 07:52

Well then

If there was no connection between the partnership and the original vendor, the company would be entitled to a full deduction for goodwill amortisation. (You don't mention amortisation in your question, but I assume that is what you meant.)

Thanks (1)
Replying to Tim Vane:
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By dbowleracca
17th Apr 2013 09:15

Thank you BKD
Hi BKD

Thanks for your help, and you are correct I was referring to tax relief on the amortisation.

Just to clarify, so I understand completely, the amortisation of the full goodwill is allowable because when it was originally acquired by the partnership, it was from an unconnected party and was acquired after April 2002?

And the fact that goodwill amortisation is not allowable when acquired by a partnership is irrelevant when that goodwill is later sold on?

Thanks

David

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By BKD
17th Apr 2013 09:35

Correct on all counts

Put simply, the company will be acquiring goodwill in relation to a business which was not carried on by any related party prior to April 2002.

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