Changes to rollover relief on incorporation from 3 December 2014

Until recently, it has been common for an individual incorporating his business to revalue the goodwill and hold over the relief. Finance Bill 2015 sets out to alter this.

Under the Intangible Fixed Assets regime introduced by the Finance Act 2002, rewritten to sections712, 713 and 715 Corporation tax Act 2009, the goodwill could be transferred from the sole trader or partnership to the company and the amortisation of the goodwill would be a trading expense in the company.  There was no restriction in the amount written off, the figure in the accounts was accepted, provided the accounts were prepared under UK GAAP.  

This arrangement has led to some confusion and abuse and the Finance Bill 2015 sets out to alter this. The draft legislation states: “The measure will restrict corporation tax (CT) relief where a company acquires internally-generated goodwill and customer related intangible assets from related individuals on the incorporation of a business.”

The measure is due to be introduced in the Finance Bill 2015 and is effective from 3 December 2014 (the date of the Autumn Statement).