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Busy Practitioner by Mark McLaughlin CTA (Fellow) ATT TEP

Mark McLaughlin CTA (Fellow) ATT TEP explains when SDLT may be due in respect of goodwill, and outlines some recent money laundering rules changes.

Stamp duty land tax and goodwill

Most practitioners will be aware that ‘chargeable consideration’ for stamp duty land tax (SDLT) purposes includes payments for plant and machinery that are fixtures (as opposed to chattels or moveables) forming part of the land and buildings. What is perhaps less well known is that chargeable consideration also includes goodwill on the sale of a business, if that goodwill relates to the land (i.e. ‘inherent goodwill’). This point is made in HMRC booklet SDLT6 ‘How to complete your land transaction return’, and was confirmed by HMRC in the Practitioners’ Newsletter Issue 8 (June 2005).

The HMRC Capital Gains Manual states in relation to the capital gains position of the seller (at paragraph 68031): ‘Inherent goodwill will be an indivisible part of the value of freehold premises and cannot be sold separately.’ It goes on to say: ‘With properties such as public houses, cinemas and petrol stations any non-personal goodwill…is regarded as being part of the inherent goodwill.’ As pointed out in the Capital Gains Manual at paragraph 67990 et seq, there are various components of goodwill, the main categories being personal, inherent and free goodwill. If an agreement for the sale of a business includes goodwill and premises, the purchaser (or adviser) should distinguish between the different elements of goodwill, and ensure that any consideration for inherent goodwill is taken into account for SDLT purposes. It should therefore be helpful to ensure that the agreement specifically addresses the issue of inherent goodwill, if possible.

Money laundering recent developments

The Serious Organised Crime and Police Act 2005 received Royal Assent on 7 April 2005. This legislation includes a number of amendments to the money laundering rules in the Proceeds of Crime Act 2002. The main changes of relevance to most practitioners are broadly as follows:

• a limited defence is introduced to the money laundering offence and disclosure rules if there are reasonable grounds for believing that criminal conduct occurred outside the UK, if that conduct was lawful in the foreign country or territory when it occurred. This amendment will provide some defence against certain administrative offences (e.g. breaches of health and safety regulations) or regulatory offences. Perhaps a more extreme instance where the amendment may assist is where income is derived from bullfighting (a criminal offence in the UK), if there is a knowledge or reasonable belief that the bullfighting took place in a country (e.g. Spain) where it was a lawful activity. This amendment comes into effect when a Statutory Instrument describing the offences that will (or will not) remain reportable enters into force. Until then, such offences continue to be reportable.

• there is no longer a requirement to make a money laundering report (normally a ‘Limited Intelligence Value’ report) where the identity of the culprit and whereabouts of the property are unknown, if there is no information to help identify the offender or the whereabouts of the criminal proceeds. For example, this should assist the auditor of a supermarket or petrol station where there have been instances of shoplifting or a person filling their car with petrol and driving off without paying. Previously, the auditor would have been required to submit a report to the National Criminal Intelligence Service (NCIS), even though it contained no information of practical value to law enforcement. This amendment came into force on 1 July 2005.

• a person will commit an offence if a report is made to NCIS other than in the prescribed form and manner, unless there is a reasonable excuse for failing to do so. Copies of the standard disclosure form can be downloaded from the NCIS website (http://www.ncis.gov.uk/disclosure.asp). Money Laundering Reporting Officers of firms should also be aware that internal disclosures made to them are still potentially reportable, even if the communication was not in accordance with the firm’s normal money laundering procedures.

Further information on the above and other amendments to the money laundering rules is contained in the ICAEW technical release TECH 49/05, which can be downloaded (in pdf format) from the Institute’s website: (http://www.icaew.co.uk/index.cfm?AUB=TB2I_84855|MNXI_84855). Further guidance is also contained in the Home Office Circular 33/2005 ‘Proceeds of Crime 2002: Amendments to Money Laundering Provisions’, which can be downloaded from: www.circulars.homeoffice.gov.uk.

October 2005

Mark McLaughlin CTA (Fellow) ATT TEP is a consultant to professional firms, and Editor of TaxationWeb.

The above is an extract from ‘Tax Practice Diary’ in ‘Busy Practitioner’ (October 2005), which is published by Tottel Publishing.