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New Changes Restrict Reliefs for Goodwill But Options Still Remain

28th Jan 2015
Tax Advisor Eaves & Co
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Two changes were announced in the Autumn Statement to the treatment of goodwill on incorporation, which had immediate effect from 3 December 2014.

These were as follows:

  • Entrepreneurs’ Relief is no longer available on a sale of the goodwill to a connected party
  • Tax relief on writing off the goodwill (amortisation) can no longer be obtained once in the company.

Both of these changes will reduce the attractiveness of common planning which was undertaken when incorporating a business, but there are still options available to avoid tax becoming a drawback on incorporation.

The use of TCGA 1992, s.162 incorporation relief, in combination with s.165 gift relief where suitable, is still possible in order to avoid upfront capital gains on incorporation.

It should also be noted that the new restrictions only apply where the parties are connected, and there could therefore be situations where suitable planning could be undertaken to prevent the rules from applying.  Similarly, in cases of a management or third-party buy-out, these new restrictions should not apply.

With further tightening of the rules, it will be more important than ever to ensure suitable professional advice is sought before undertaking an incorporation as careful structuring will be needed to avoid unexpected outcomes.

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Replies (2)

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By Satwaki Chanda
02nd Feb 2015 13:30

Sting in the tail...

Note that even on incorporation relief, the goodwill deduction will still be restricted from the point of the company. 

Re your comment:

"It should also be noted that the new restrictions only apply where the parties are connected, and there could therefore be situations where suitable planning could be undertaken to prevent the rules from applying."

one may have to tread carefully in these situations because there's a subtle sting in the tail in the form of the new TCGA 1992 s 169LA(5) which says that one can still be caught if one is party to relevant avoidance arrangements - in a nutshell, if you manouvres your position to secure that you aren't related to the company in question, or to ensure that the goodwill isn't included in the business transfer.

It will be interesting to see how this anti-avoidance provision will work in practice and what HMRC will say (or not) when they come to update their Manuals. (I am assuming that we'll be able to find the said Manual...)

 

 

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By rameshbham
29th Mar 2016 16:37

Customer Database and Goodwill sale

Hello all,

We are in the early stages of selling our Ltd Company, and deciding which would be best method to maximise the benefit from Enterpreneurs Relief. Our buyer wants to buy just the goodwill, customer database etc, but does not want to buy the whole Ltd company. (Does not want to take on any gremlins which might arise in the form of unforseen liabilities etc its and easy bolt-on to his existing organisation). Can anybody advise, if we can sell these portions of the business and claim ER, on the sale proceeds, which ideally would be paid directly to us (the current directors)? The most tax efficient mechanism and least cost method please to maximise our pension. The sums involved are modest well below 500k.

We are retiring so we would be winding down the company once we have taken out the cash-in-bank, have recovered any customer debts, paid any liabilities etc.

Our account at this early stage suggests we can either sell the whole ltd , which the buyer does not want or the buyer pays the sum directly into the company, which would mean we would have to pay corporation tax (20%) on the amount and then take out as annual dividends (further 10%) ??

Are we mis-informed or can somebody point us in the right direction?

 

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