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TonyTax
TonyTax, Tax Consultant
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We are buying a business (dog boarding kennels) which is in

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Hi - we are buying a business (dog boarding kennels) which is in a leasehold property with 20 years remaining on the lease. The contract for sale has the breakdown of sale price (£95,000) as £84,000 property, £1,000 equipment and £10,000 goodwill. Our solicitors have highlighted the fact that they are trying to keep the goodwill figure to a minimum as this is the figure in their accounts, so as to avoid paying corporation tax. We don't feel that this is a realistic breakdown but at the same time don't want to hold the sale up any longer as it's taken forever so far! However, we are hoping that we will be able to extend the lease on the property at some point in the future and if successful will likely want to sell the business in 10 years or so and want to know what the implications will be for us if we agree to this breakdown now.
Thanks
Lynne Purdy
Submitted: 7 months ago.
Category: Tax
Expert:  TonyTax replied 7 months ago.

Hi.

Are you buying the shares in a limited company which owns the bsuiness which means that you will be operating the business through a limited company or are you buying business assets?

Customer: replied 7 months ago.
Hi - no we aren't buying the shares, we are setting up our own limited company which is buying the business as a going concern. There aren't really any assets as such apart from a few incidentals, so it's really just the on-going business. The current owners set up the business and built the kennels building, but it is a leasehold property (it is built on private land which is owned by the friend of the business owner).Hope that helps
Lynne
Expert:  TonyTax replied 7 months ago.

Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.

Expert:  TonyTax replied 7 months ago.

You ought to discuss the entire plan with an accountant before you sign any contracts.

As you will read here, as your company is buying the business assets as opposed to the shares, you cannot get tax relief for the cost of the goodwill. The effect of the low value of the goodwill is to reduce the corporation tax the selling company will pay. When you sell the business in the future, the gain on the goodwill will be ascertained by deducting the £10,000 cost from the price agreed for it. The higher you can get the goodwill price now, the better from a future tax point of view.

As you will see here, the assignment of a short lease means that your allowable cost is reduced as each year passes so if you sell the lease in ten years, you may find that the gain is higher than you thought it would be. The tax treatment is different if you take out a new short lease. Take a look at the notes here and discuss it with an accountant or tax adviser.

I hope this helps buit let me know if you have any further questions.

Customer: replied 7 months ago.
OK thanks
Expert:  TonyTax replied 7 months ago.

Hi again.

It's been a few days since I answered your question. Assuming you don't have any follow up questions, would you mind rating my answer please.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15838
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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