Rollover relief for company on disposal of goodwill?
Question:
I own a UK limited company that has traded as a sportswear retailer. In February 08 I (the company) sold the business to another company. There was no disposal of the shares, just the business assets.
The proceeds related to Premises, Debtors, Stock and Goodwill. The goodwill element of the proceeds was a substantial -- around £300,000. As this goodwill was developed over the many years of our running the business this will be taxed at 30%. I'm looking at options to reduce my tax charge and am concerned about this substantial tax charge on the goodwill disposal.
I've kept the company going and have purchased a derelict via the company for some £500,000. My plan is to renovate this (at a substantial cost which I shall loan to the company) and then sell as an office complex. The company has not purchased any "goodwill" but has plans for purchases of other properties if this is successful.
My query relates to whether I can reduce tax by claiming rollover relief. In particular is there any scope for me to rollover the gain on the goodwill in the company due to the new purchase?
Answer:
It is unlikely that a rollover relief claim would be accepted.
Firstly under the general rollover provisions, the relief is only given where the proceeds of disposal of the old asset, are reinvested in the new asset, and both the old and new asset are qualifying business assets.
The key point here is that the reinvestment must be in assets. Although the disposal was undoubtedly an asset, if the company is now undertaking a property development trade (as appears to be the case), the properties would not be fixed assets of the business. Instead the property would be likely to be akin to trading stock, an as such a rollover relief claim would not in any case be accepted.
Secondly, the new Intellectual Property ('IP') rules that apply to disposals by companies after April 2002, state that rollover relief would not be given.
Instead the new reinvestment relief may be given where the reinvestment is in other qualifying intangible assets (eg more goodwill).In this case the company has purchased property so the company reinvestment would in any case fail to meet this.
About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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