Owner-Managed Businesses

Transferring goodwill on incorporation

Produced by Tolley in association with Julie Butler
  • 20 Dec 2021 09:31

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Julie Butler provides comprehensive and up to date tax information covering:

  • Transferring goodwill on incorporation
  • Valuation of and recognition of goodwill
  • Tax treatment for the disposer
  • Tax treatment for the company

Transferring goodwill on incorporation

One of the assets transferred on incorporation is the business goodwill, which can then be used to create a loan account which can be drawn tax-free. There are specific tax treatments in respect of any goodwill transferred both for the person transferring it to the company and for the company acquiring it on incorporation, these are set out below. However, it is first necessary to consider the valuation of the goodwill.

Valuation of and recognition of goodwill

It is essential that a careful approach is taken to the valuation and recognition of goodwill, as this is liable to be challenged by HMRC. In order to be transferred to the company, the goodwill must, in HMRC’s view, be free, ie not personal goodwill which remains with the individual running the business, and not attaching in some way to the property. If it does attach to the property, a higher property valuation should apply for which there is no corporation tax relief, though business asset disposal relief (previously known as entrepreneurs’ relief) will be available on the higher value.

A detailed consideration of the nature of goodwill appeared in Balloon Promotions Ltd and others v Wilson (Inspector of Taxes).

HMRC published guidance on

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