Transferring goodwill on incorporation

Produced by Tolley in association with

Owner-Managed Businesses

Guidance

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

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Julie Butler

Managing Partner at Butler & Co Chartered Accountants & Registered Auditors

Julie Butler FCA is the founding director of Butler & Co Chartered Accountants, a firm that specialises in agricultural and land matters. Julie has lectured extensively on proactive tax planning for farmers and landowners, with an emphasis on diversification and development.Julie and her team provide tax consultancy services direct to the farming and equine industry and to other accountants, land agents and solicitors on farming diversification, bloodstock and all areas of the equine world.Julie's articles are published in the national accountancy and tax press and she is the author of the successful books Tax Planning for Farm and Land Diversification and Equine Tax Planning as well as being co-author of Stanley: Taxation of Farmers and Landowners with Malcolm Gunn. Julie is also editor of Farm Tax Brief and contributes to Tolley's Tax Planning.Julie is an authorised individual licensed by the ICAEW to carry out the reserved legal activity of non-contentious probate in England and Wales.

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