Goodwill onTrade related property

[tom 7000]

I incorporated the existing self employed business of a nursing home in Oct 2010. The premises stayed outside the incorporation and is rented from the owner to the company. Assets were transferred in at WDV, Stock at cost. Goodwill was estimated at £1m and we wrote to the valuation office to see if they agreed, , documentation said if anyne disagreed we reserved right to rescind transaction..

You may be aware there is some argument on trade related properties between HMRC and various accounting bodies. HMRC came back and said Good will is zero, but there is £647k of ''property rights''. So Dr property rights Cr Directors loan account and I have a nice balance on the directors account as planned. I said to the tax inspector in nottingham at the valuation office - whats the tax treatment of that property right then....he said ...The residual interest in the property is 1.5m, even though it originally cost 2.2m some time ago so...The proceeds are 647k. the cost to allocate to it is 647/ (1.5m +647k) x 2.2m =662k So you have a capital loss and no cgt to pay, just some stamp duty on the 647k

I sad thats not right, he said, it is i've done 100s of these. I said are you sure, he said yes, I said its a lease premium if you call it that, he said IT JOLLY WELL ISNT its a property right and Ill tell any tax inspector/ person that disagrees otherwise...seemed pretty adamant!!

If Its a Sch A lease premium then 500k is subject to IT the tax is 250k (high rate tax payer) plus stamp duty 24k plus cgt on 147k =13k allup =287k...and I have an issue as I was expecting 10% on 1m .

One questions a) is it a lease premium and if it is b) can I rescind, enter Zero in the books instead saying no goodwill or anything else was transferred other than stock and tangible FA so I dont have to create a 287k tax bill...rather have no balance on loan account. Help I am not sleeping well...

tom

If thats correct I am happy as pie. So I dropped him a line and said put that in writing...he called and said I will get the co's tax inspector to confirm it....so I am waiting and not sleeping....
B

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