Two changes were announced in the Autumn Statement to the treatment of goodwill on incorporation, which had immediate effect from 3 December 2014.

These were as follows:

  • Entrepreneurs’ Relief is no longer available on a sale of the goodwill to a connected party
  • Tax relief on writing off the goodwill (amortisation) can no longer be obtained once in the company.

Both of these changes will reduce the attractiveness of common planning which was undertaken when incorporating a business, but there are still options available to avoid tax becoming a drawback on incorporation.

The use of TCGA 1992, s.162 incorporation relief, in combination with s.165 gift relief where suitable, is still possible in order to avoid upfront capital gains on incorporation.

It should also be noted that the new restrictions only apply where the parties are connected, and there could therefore be situations where suitable planning could be undertaken to prevent the rules from applying.  Similarly, in cases of a management or third-party buy-out, these new restrictions should not apply.

With further tightening of the rules, it will be more important than ever to ensure suitable professional advice is sought before undertaking an incorporation as careful structuring will be needed to avoid unexpected outcomes.

Compared to recent offerings, the Autumn Statement provided relatively few announcements on taxation.

Potentially the most interesting from a planning perspective is the new Seed Enterprise Investment Scheme (SEIS) which is designed to encourage investment in new start-up companies. The new scheme will provide income tax relief of 50 per cent for individuals who invest in shares in qualifying companies (limited to £100,000 per year).  This compares to 30% relief in standard EIS companies.

 There will also be a ‘capital gains tax holiday’ for investments made in the new scheme. This will provide for a CGT exemption on gains on the disposal of an asset in 2012-13 which are invested through SEIS in the same year.

 More details are likely to follow in December.