Opening evaluation of Goodwill

by **goldenfawn** on Tue Nov 29, 2011 10:37 am

A sole trader business was established in 1971 providing external stone building cleaning. In 2010 the business was sold. Although there was no cost of goodwill presumably it had a value at March, 1982. If so, (a) how can it be evaluated, and (b) can the value be included in the CGT computation?
All views would be gratefully appreciated.

by **Chanmuganathan** on Tue Nov 29, 2011 2:44 pm

How the business was sold?

• Business as going concern
Or
• Assets ( Called assets stripping if you want to sale your assets separately)

If you sold as business then there was no deduction for goodwill as internally generated and
you are eligible to Entrepreneur relief (10% CGT Subject to limit).
This method is much beneficial for the seller.

If you sold as assets such as goodwill, plant and machinery etc, then you are not eligible for E Relief, for the buyer can claim capital allowances and deduction for the goodwill.

This method is better for buyer not the seller.

OK answer to your question Goodwill is the difference between the fair value of the assets and the consideration received.

PS: I assumed you have not sold you business to your limited company then the treatment of goodwill is different.

by **goldenfawn** on Wed Nov 30, 2011 10:11 am

Thanks for your reply.

I should have explained that the smaller part of the business was retained ie beam cleaning. The sale Contract states that what was sold was Goodwill for £37250 and trade fitting equipment for £750. i am unsure how this fits in with your comments.

by **Chanmuganathan** on Wed Nov 30, 2011 11:02 pm

Based on the information you provided, It seems you have sold distinctive part of the business as going concern therefore you are eligible for E Relief.
Base costs of the business, including goodwill, are the expenses has been treated as capital cost of the business ( which are not deducted in your income tax computation) from the start of the business.
From your information the goodwill has been created internally such as popularity, customer reputation, client base, PR, etc. Normally expenses related to build up this goodwill had been already deducted in income tax computation; therefore it has no base costs.

by **goldenfawn** on Thu Dec 01, 2011 3:07 pm

Thank you for your reply. I understand the logic of your comments regarding the normal expenses incurred having been included as expediture within accounts over the earlier years. It was just a nagging feeling that there may have been an accrued valuation at March, 1982 (as if it had been sold then there would have been a value) based on previous profits and/ or turnover.