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Internally generated goodwill on disincorporation

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A client is transferring her ltd co trade into sole trader business.  The company is very small and there is no internally generated goodwill recognised in the accounts.  Assets (cash) are going to be transferred via dividend.  How is internally generated goodwill treated for CT and IT for both the company and shareholder upon this transfer?  Is there any BIK impact? Is there a rule of thumb way of valuing internally generated goodwill? 

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Accountants & Tax Advisors
By Gladstone
19th Dec 2019 12:08

Personally, I have not seen internally-generated goodwill valuation in a common-controlled scenarios. Valuation becomes necessary if it is a 3rd party disposal.
You say the client is "transferring" the trade presumably for a value (fair value or fair market value) and not the book value. The fair valuation will have addressed the internally-generated goodwill and similar aspects in the value to be used for the transfer (can be different for tax and accounting purposes). On the other hand if the transfer is being done using the book value (as fair value), internally-generated goodwill will not be represented in the acquisition price.
Not claiming to be an expert in CT, but based on my understanding, gain on sale of business will be taxable for corporation tax as far as company is concerned which will also mean that after tax profits will be subject to income tax (including dividend tax at 7.5% or 32.5%) when distributed to shareholders.

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By Vaughan Blake1
19th Dec 2019 16:27

Are you sure that there is any internally generated goodwill?

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By CJaneH
19th Dec 2019 17:07

It sounds like a one person business, in which case any goodwill probably is attached to the individual not the company.

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Replying to CJaneH:
By Barney W
19th Dec 2019 17:18

That is what I was thinking. So fair value and book value are the same as only asset is cash?

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