Corporation Tax Relief Changes for Goodwill

Category: Healthcare - Posted On: Jul 6 2016


When care home businesses are purchased there may be an element of goodwill value included in the purchase cost. The goodwill amount is the cost over and above the fair value of the net assets of the business. Businesses usually capitalise this goodwill as an intangible fixed asset and write it off over a number of years, known as amortisation.

Previous corporation tax rules

For certain goodwill purchases before 8 July 2015, limited companies were allowed to claim a corporation tax relief deduction for the amortisation amount each year as long as their accounts complied with accounting standards.
The sale of most types of goodwill purchased before 8 July 2015 is taxable as a capital gain or loss.

New corporation tax rules

For goodwill purchased after 8 July 2015, limited companies will not be allowed to claim a tax deduction for its amortisation. They will however still be allowed to continue claiming the tax relief for the amortisation of existing goodwill that was purchased before 8 July 2015.

The sale of goodwill which was purchased after 8 July 2015 is now taxable as a trading profit. If a loss arises, it is treated as a non-trading deficit.

The sale of most types of goodwill which was originally purchased before 8 July 2015 is still taxable as a capital gain or loss.

Summary

The above is a very simple outline of changes to the corporation tax treatment of goodwill but, as always with tax, there are other complications and exceptions which need to be considered for each individual case.