Share this content

Goodwill valuation for filling station

Goodwill

Didn't find your answer?

Hi everyone,

Does anyone have any idea how to value the goodwill of a filling station / garage / convenience store?  Pre-Covid turnover £2.75m, last year £2.25m but net pre-tax profits consistent at around £180k incl directors' remuneration & Covid grants.

It's a family business (Ltd Co) built up from nothing, net assets on b/sheet £480k are probably fairly realistic, no goodwill included. Mother wants to retire and give her shares to their son, but presumably we'll have to include some sort of goodwill figure in the CGT calculation. Freehold not included and will be retained by parents ad infinitum.

Any thoughts and pitfall warnings would be welcome. Presumably holdover relief will be no problem on the shares?

Thanks

Replies (9)

Please login or register to join the discussion.

avatar
By Adam12345
13th May 2021 21:51

If a holdover relief claim is being made, and there is no restriction to the relief, then you don’t need to value the shares.

SP 8/92

Thanks (1)
avatar
By paul.benny
14th May 2021 08:32

Looks like a bit of muddled thinking here

Who owns the freehold - parents or company?
If parents are retaining ownership of freehold (via company or personally), will there be a rent to the son's business?

If company owns freehold, how's it being extracted before the business transfers to son?

Once you've established the actual structure of the transaction, you can think about valuing the company/shares.

Thanks (0)
avatar
By Eddystone
17th May 2021 12:19

Strange, thought I'd replied to this but it doesn't seem to have got away!

Thanks, Adam and John, and good point Adam about the goodwill - it's a bit academic anyway until the final sale, isn't it? So perhaps I'll just use the b/sheet figures, which are actually fairly realistic.

As mentioned, John, the parents own the freehold and plan on continuing to do so. We used to put in a rent until it was mooted some years ago that this would disqualify such properties from being IHT business assets, so now no longer do so.

Thanks (0)
Replying to Eddystone:
avatar
By Mr_awol
17th May 2021 12:49

so there was a rent, now there isn't a rent, but will there be a rent in the future?

As for a 'final sale' when might that be and how old are the parents? Have you assessed what the IHT/CGT/Future CGT liabilities might be if the company is retained rather than gifted?

Thanks (0)
Maytuna
By DJKL
17th May 2021 13:28

We purchased a filling station years ago but well before before my time so this is all secondhand stuff considering the main areas that arose in that transaction and how they might impact valuation.

I think you have to clearly understand the current state and condition of the facilities on the site, their age, their lifespan, also indicative idea re any ground contamination remediation/upgrades needed and the costs, and whose costs,these can be very significant.

Is there a tie in with Shell/Esso etc, how does that work, does it have re its drafting a bearing re the valuation?

What about other services, how do these work, carwashes, air hoses, coffee, hot food etc etc etc, are these in house, hired machines, shared profits etc? What about its shop operation, newsagency,licence etc?

A really good understanding of the operations that are run, are they in house/outsourced, the legal rights/obligations within any ownership/leasing position is imho essential to get to any valuation.

Thanks (0)
avatar
By paul.benny
17th May 2021 14:16

Who are you acting for? A low valuation now gives a higher future CGT. I would question whether you can act for both mother and son.

Thanks (0)
avatar
By More unearned luck
17th May 2021 17:28

Filling stations are trade related properties, they are valued by capitalising the profit capable of being made by a reasonably efficient operator. This means that there is only goodwill if and to the extent that the actual operator is better than than an REO. Or to put another way there is likely to be little or no goodwill if goodwill is the difference between net assets and selling price.

If you still want an answer to your question, "how do you value a filling station?", the answer is you instruct a suitably experienced member of the RICS to give a 'red book' valuation. Such experts are few and far between as explained here:

https://www.isurv.com/downloads/download/75/petrol_filling_station_valua...

Expect to pay a hefty fee.

Thanks (1)
Replying to More unearned luck:
avatar
By More unearned luck
17th May 2021 18:06

This recent case:
https://www.bailii.org/uk/cases/UKUT/LC/2021/76.html
Hints at the tax difficulties that can be caused by splitting the operation and ownership of TRPs between connected persons.

Take care.

Thanks (0)
avatar
By Eddystone
17th May 2021 17:57

Thanks again, everyone, for the input.

Well, Awol, the parents are in their early 70s, son around 40, and they would really like to give him a stake in the business so it's not all about tax. There's no final sale in prospect, maybe when the son retires himself 30 years or so hence, or maybe his own son may want to take it on.

No, I don't think there will be a rent in the future, but it dawned on me today that if Mother retires, passes on her shares and directorship, then her share of the freehold will cease to be an IHT business asset. So she'd best give away her share of the property too!

Paul - that hadn't occurred to me, but I'm reaching the conclusion (thanks, Adam) that we don't need a goodwill figure anyway with hold-over relief. A low figure now would mean less held over and more of a final gain and vice versa, so it will all come out the same on an eventual sale, and anyway who knows what the tax regime wiill be in 30 years?

DJKL - thanks for those comprehensive thoughts. The property is in top condition, modern equipment, no expense spared etc., and there is an Esso contract. But as you say, who knows if there's ground contamination etc. Another filling station not far away had to close due to that, and the site is still derelict about 15 years later. I imagine that, if Mother's share of the property is being transferred too, we will need some sort of valuation for Stamp Duty purposes and those sort of things can be factored in, if only as potential risks.

So thanks, guys, it's really good to bounce these thoughts around and it has been a great help.

P.S. Cheers, More - your reply came in just as I sent this! My question was actually as to the goodwill valuation rather than the business as a whole, but points taken on REOs etc. This is actually a very profitable business, but whether it would remain so under a new owner is another thing.....

Thanks (0)
Share this content