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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 15662
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a small client. He was operating as a sole trader (no

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I have a small client. He was operating as a sole trader (no staff) in the construction industry.
Last year he converted to a one-man-band limited company. There is essentially no change to his pattern of trading.
I propose to transfer all his assets from the sole trader to the limited company at book value.
I understand there will be no tax implications under TGCA 1992 ss 162 and 162a.
I could create, say, £K10 of goodwill (below the annual CGT allowance), put it in his loan account and it could then be drawn tax free at leisure.
However it may be difficult, formally, to justify this goodwill.
How would HMRC view this?


It will only be a problem if the tax office ask you to give your reasoning behind a valuation of £10,000 but that doesn't justify what could be a spurious attempt to get some tax free cash. I'm also wondering how a one man building business can have any goodwill since he is the business. Even if he had a list of regular customers, who is he going to sell the list to? I might give regular work to your client because he does a good job but if he sells my name to another builder, I won't necessarily use the new one for building work. It might be different if he has contracts with local authorities or other businesses.

You have to be able to justify a valuation of goodwill if you are asked to by the tax office.

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

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