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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 15751
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi My son purchased a small business for £15,000 with a loan

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Hi My son purchased a small business for £15,000 with a loan of the same amount. The consideration was £3000 for Plant and equipment and £12,000 for goodwill. Is he able to claim tax allowances for the goodwill element? Thanks

Hi.

Does your son operate the business on a self-employed basis or through a limited company? Is he connected in any way to the vendor of the business?

Customer: replied 3 years ago.

Tony, He is self employed with no connection to the vendor. David

Thanks.

I'm afraid that there it is only possible to claim tax relief for purchased goodwill through the life of the business if that business is operated through a limited company as opposed to on a self-employed basis. The cost of the business to your son is £12,000 and he will be able to deduct that from the disposal proceeds if he sells the business at some point in the future when calculating any taxable capital gain.

If your son has only just bought the business and there has been no increase in the value of the goodwill, he might consider incorporating his business into a limited company so that he can if he wishes amortise or write off the cost of the goodwill over a period of time against his profits. There can be personal tax consequences if goodwill is transferred into a limited company if the value has increased since it was bought. Take a look here for information on how the amortisation of goodwill works in a limited company.

Your son should discuss the advantages and disadvantages of incorporating with an accountant or tax adviser face to face before making a decision to incorporate.

I hope this helps but let me know if you have any further questions.
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Hi again.

I see that you read my answer to your question a few days ago. If you need further clarification, please let me know. If not, would you kindly click on Accept or on one of the OK or better smiley faces so that I get paid. Thanks.

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