Over Taylor Biggs

The current position

The current position at law is that the statutory provisions relating to chargeable gains, capital allowances and stamp duty land tax (SDLT) require the consideration in respect of a business sold as a going concern, to be apportioned on a "just and reasonable basis".  In the past there has been little guidance provided by HMRC on exactly how such an apportionment should be made. 

The position prior to the publishing of the above Practice Note was that there was an argument that there was little or no goodwill attached to the sale of trade-related properties which are included in the sale of a business as a going concern and as such the consideration was not historically split between goodwill and the value of the property (or if it was, a nominal £1 was attributed to goodwill).  Typical examples of businesses where the property is the key asset and arguably without that asset there would be no business, comprise businesses such as trade pubs, hotels, petrol stations, cinemas, restaurants and care homes. 

The new position

HMRC acknowledge in the above Practice Note, that on a sale of a trade-related property, there is in fact likely to be an element of goodwill which has separate value compared to the property. 

The above changes to the position provided by HMRC arise out of complaints made by the public to HMRC because although there is no longer stamp duty payable in relation to the transfer of the goodwill element (stamp duty was chargeable at 0.5% of the consideration attached to the goodwill) of a business from the seller to a buyer, there is now SDLT which is payable on the value of the property transferred from the seller to the buyer at the rate of 0% to 5%, depending on the value of the relevant property.  Capital allowances are not available for expenditure on goodwill; however, companies are entitled to corporation tax relief for the cost of acquiring goodwill in line with the amortisation of goodwill in the company's accounts. 

Impact

In light of this clarification from HMRC, corporate buyers should ensure that an appropriate part of the purchase price is attributed to goodwill as this will reduce the SDLT costs in relation to the transfer of the property.  HMRC have advised in their Practice Note that as a rule of thumb, the value of any goodwill should first be deducted from the total sale price and than, after deducting the value of the other assets sold by the seller to the buyer, the balance of the purchase price will be the value of the property for chargeable gains and SDLT purposes.

The question of how much value is attributed to the other assets is still a balancing act and a buyer will need to liaise closely with its accountants to decide the appropriate values (and their related ability for the application of any release) in relation to the apportionment in the Business Purchase Agreement.