HM Revenue and Customs (HMRC) have traditionally taken the view that where the nature of a business is such that it must trade from a property (for example, a pub or a care home), where the use of specially adapted premises is concerned, the amount of goodwill in the business which is ‘extra’ is likely to be small. The argument in essence is that much of any ‘super profit’ earned by the organisation (on which a payment of goodwill could be justified) is likely to be due to its position or some other physical factor.
This is important because the apportionment of the proceeds of sale between different assets can potentially have implications for Income Tax, Corporation Tax, Capital Gains Tax, Value Added Tax and Stamp Duty Land Tax.
However, a change in approach by HMRC means that they may now consider there to be more ‘free’ goodwill than previously recognised. A new Practice Note acknowledges problems with the apportionment of sales proceeds of ‘trade related property’… (e.g. public houses, hotels, petrol filling stations, cinemas, restaurants, care homes etc.). It advises that in these cases there can be particular difficulties in identifying the sum attributable to goodwill, which in these cases is normally fundamental to the apportionment.
This view is backed up by the sometimes large difference in value between a business sold as a going concern and the disposal of the various assets piecemeal – in which case the goodwill value normally ‘goes with’ the property.