The end of goodwill to all men?

Every once in a while a Budget or Autumn Statement throws something out of leftfield. Some thing unexpected. Something which seems a little hard to fathom.

It is probably fair to say that the removal of entrepreneurs’ relief (ER) on business incorporations came certainly as one of these events.

The practice of selling one’s goodwill to a NewCo at a CGT rate of 10% had almost become a custom for many businesses. The vendor able to drawdown on a tax paid loan account for a couple of years.

Of course, one man’s vanilla tax planning may well be viewed differently by HMRC. Traditionally, HMRC have attacked the valuation of the goodwill itself. The Share Valuations Division entering in to long, life sapping negotiations with the taxpayer.

Furthermore, it was also possible for NewCo to gain corporation tax relief on the write off of the goodwill it had acquired. This has similarly been blocked by the new rules (businesses that have already incorporated prior to the new rules can continue to claim relief)

So, one could say those who have got in before the change are fortunate. Those who have dillied and / or dallied have missed the boat? Or is it that straightforward?

Despite the presence of anti-avoidance provisions, it seems a relatively simple exercise to achieve the same result by structuring the transaction slightly differently. The outcome being that the Vendor creates the ‘tax paid’ loan account on which he can draw going forward after crystallising the gain on goodwill at 10%. Furthermore, it also seems possible that the NewCo will get a deduction for corporation tax equivalent to the relief he would have previously gained

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