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Sale of goodwill

How to allocate purchase costs

My corporate client has sold part of its trade (an financial advisory business).  The goodwill of the part business (a client list and associated commission stream) sold for £500,000.  Total goodwill is valued at £1.5m.  Goodwill was purchased in 2012 for £100,000 (current NBV £50,000) and a further £500,000 paid in 2016 (NBV £400,000).  In addition the company has won new clients (at no cost).  I am at a loss to know how to calculate the capital gain and intangible credit - is it simply by reference to relative values or do I look at the lists of individual clients originally acquired and allocate the costs appropriately (including the cost of "purchased clients" that have since been lost)?  Your help will be gratefully received.

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By DJKL
05th Dec 2018 17:24

Is there one asset?

Do you not have an A/(A+B) scenario?

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to DJKL
06th Dec 2018 07:41

One asset. Or maybe two. Goodwill is nebulous - the hope of future work from past customers (the client list). Commission is an additional reward for past work and is more... well, routine tax use of the word prevents me from using the expression I want to use, which is "tangible". It's distinct from goodwill anyway. And is therefore not part of your "A". (It's straight gain on that part of the deal, even assuming Pt16 Ch1 of CTA10 is not in point.)

I might have dreamt it and at this stage of the tax return cycle I'm not about to check, but goodwill is one of those things that causes HMRC much angst. And I'm pretty sure there's lots of explanation (with relevant authority) about it in the manuals. Defo worth the OP having a gander, anyway.

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