Sole Trader to Ltd Co: CGT Liability

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For a client who Incorporated after being a sole trader (I'm dealing with 1st SA and company accounts since incorporation), I want to confirm my valuation with regard to CGT.

The sole trader business at time of incorporation had no assets except debtors which were not transferred to the Ltd co (the computers used to perform the core services are personally owned and by looking at the previous sole trader accounts were never transferred in into the accounts of the sole trader business), so the value of the goodwill is what I need to confirm for the purposes of the CGT liabilites in the 17/18 tax return. 

The sole trader business had a profit for the 16/17 of around £16K, however, when using the (usually accepted by HMRC) small business valuation method of 2-3x maintainable pre-tax profits I come to the conclusion that the capital gain is £0 as when calculating the 'maintainable profits' by adding in the would-be commercial salary, rental charge of home office, etc the profit is reduced to zero. 

I just wanted to seek if there are any differing opinions?

Thanks

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By cliveth
19th Jun 2018 12:21

Are you trying to achieve a goodwill value to create a credit to the DLA (which can later be drawn out tax-free)? It looks like the goodwill is "personal" so does not have any value. Goodwill value up to the CGT exemption would of course be tax-free (assuming no other gains). For value above the exemption holdover relief is of course available under section 165 TCGA 1992

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