Autumn Statement lacks goodwill

Specialist dental advisors have criticised a measure in Chancellor George Osborne’s 3 December Autumn Statement removing tax relief on businesses that incorporate goodwill.

Entrepreneurs’ relief reduces capital gains tax (CGT) to ten per cent – rather than the usual rates of 18 per cent or 28 per cent – when certain qualifying business assets are sold.

Effective from 3 December, the Autumn Statement measure means that individuals or partnerships selling their business to a limited company to which they are a “related party” – e.g. they control or have a major interest in – will no longer be able to claim entrepreneurs’ relief on the sale of goodwill, i.e. the reputation and customer relationships associated with the business.

Heidi Marshall, a committee member at the National Association of Specialist Dental Accountants and Lawyers (NASDAL), said: “Dental practices with incorporation plans on the table will be hugely frustrated by this announcement as there are no transitional provisions. The new measure has been introduced with immediate effect.”

Entrepreneurs’ relief will remain available when a dental practice is sold to a third party and some practices may still be able to benefit from incorporating.

Ms Marshall added: “The Chancellor also introduced a restriction on Corporation Tax deductions for goodwill acquired from a related party on incorporation. The restriction applies to transfers on or after 3 December 2014. Companies already receiving relief for goodwill recognised on incorporation will not be affected.”

Nick Ledingham, NASDAL chairman said: “Our accountants and lawyers will be working hard to see if there is a way round these changes to the legislation and identify other tax planning opportunities to benefit dentists.”

Milsted Langdon tax partner Rob Chedzoy said “It is disappointing that HMRC appear to be looking to treat goodwill in a different manner to other trading assets transferred into a limited company on incorporation.”

“Although goodwill can often give rise to valuation difficulties, it is often a very important part of the asset base on incorporation, and it does seem to be unreasonable to be singling this out for a different treatment. Although other forms of incorporation relief remain available, this will undoubtedly cause many  unincorporated businesses to reconsider the benefits of incorporation, something which previous government policy decisions had sought to encourage.”

For more information on the changes, or advice on any aspect of incorporation or entrepreneurs’ relief, please contact us.

Posted in Dentists.