Capital gains - how to allocate sale proceeds when split amongst several assets

Hi. My daughter has recently sold her fitness business and I’m helping to complete the capital gain on her self assessment. I’ve always done her bookkeeping but I’m unsure about a few things and I’d appreciate it if anyone is able to clarify a few things: The sale was broken down into 3 , Goodwill , Fixtures and Fittings, Equipment. Individual assets were not itemised. Regarding Goodwill - the business was built up from scratch. Other than the costs of acquiring and disposing of the business would the purchase price be zero? Regarding F&F and Equipment, there are many individual items bought over several years. Do we just make a reasonable estimate and apportion that percentage to the sale price. E.g. if total Equipment sale price was £10,000 and Safety Mats were estimated to be worth about 20% of the assets, a sale value of £2000 should be entered? Where purchases of the same type were made over a few years, e.g. 10 Safety mats bought 2017, 5 in 2018, 5 in 2022, do we need to complete 3 separate forms or can they be clumped together using the earliest date as the date of purchase? If an asset had previously been accounted for as a revenue expense, am I correct in that you can’t deduct that from the gain? Would you make a comment that this was the case and enter the purchase price as zero? If an asset had previously been accounted for under Annual Investment Allowance, am I correct in thinking that you have to make a balancing charge to increase profits on the business profit and loss. If you can’t provide a receipt or proof of purchase do you enter a purchase price of zero and comment to that effect. I’d appreciate any advice at all. Many thanks.

Hi,

Normally the only costs available in relation to the receipt of Goodwill in a business is any original costs in the acquisition of the business and any direct costs on the sale of the business.

As to any expenditure from the disposal proceeds relating to fixtures and fittings and any equipment:
If a gain has been made on the disposal of these items, a deduction may be made from the gain for the expenditure incurred in obtaining them, even if AIA or capital allowances have been claimed. However, if a loss is made on the disposal of the items the loss is restricted by the net capital allowances claimed, considering any balancing charge or allowance due.
In the accounts consideration will need to be made for any adjustments in relation to the items disposed of. If claimed as a revenue expense the sale price needs to be brought back in as income. If claimed as AIA or capital allowances an adjustment may be required to either claim any balancing allowance or show any balancing charge due.
A reasonable estimate or apportionment would be acceptable if you are unable to specify the assets separately.

You may find the following guidance useful:

CG68000C Provides links to guidance on Goodwill & Capital Allowances.

CG68000C - Capital Gains Manual: Goodwill and Intellectual Property Rights

CG68050 in particular covers Goodwill disposals.

CG68050 - Goodwill: disposals (including incorporations), part-disposals and deemed disposals

CG15400P Covers Capital Allowances

CG15400P - Capital Gains manual: introduction and computation: computation: capital allowances

Guidance held within GOV.UK may also be of assistance Capital Gains Tax for business: What you pay it on - GOV.UK (www.gov.uk)

Thank you.

That's really very helpful, thank you. Just to make sure that we have things right, could you clarify a few more things for us please. Regarding Goodwill. Could you confirm that we're able to include the following in acquisition costs, bearing in mind that the business was built from scratch and involved converting a bare industrial unit, previously used for working on vehicles: Preparation and replacement of concrete floor with vinyl flooring suitable for fitness and dance. Installation and painting of insulated ceiling where no ceiling previously existed. Installation of steel framework in ceiling to support fitness equipment. Installation of safety lighting and signage Installation of Burglar alarm. Logo design and artwork Exterior signage Regarding Fixtures, Fittings & Equipment. Where purchases of the same type were made over a few years, e.g. 10 Safety mats bought 2017, 5 in 2018, 5 in 2022, do we need to complete 3 separate CGN12 forms or can they be clumped together using the earliest date as the date of purchase? As many items were included in the sale I am likely to have over 50 computation forms. Would this seem usual or is there another document we should be using? Look forward to hearing your advice. Kind regards 

Name removed admin .

Hi,

We hope you might find it helpful if we firstly confirm that the purpose of this forum is to assist and advise our customers to enable them to self assess accurately. We should emphasise however, that HMRC does not generally provide clearance or prior rulings on declarations that are to be made on subsequent Self Assessment tax returns. With this principle in mind, we can respond to your questions as follows:

Goodwill, as you aware, separate computations are required for the different assets disposed of by your daughter on the sale of her business.The guidance at CG15161  confirms that, ‘If the disposer created the asset to provide it - for example, copyright or goodwill of a business - the cost of acquisition is the expenditure wholly and exclusively incurred by him or her in creating it, if any.’

CG15161 - Expenditure: allowable: cost of acquisition or creation

It might be useful, when computing the capital gain on the goodwill of her business, to consider the meaning of goodwill as outined in the following guidance and how, for example, a new business will not have an existing reputation but from the commencement of its activities it will begin to generate goodwill.

CG68010 - Goodwill: meaning of goodwill

Having considered the above guidance, you might conclude that the list of items you provided for HMRC comment might not be relevant as goodwill acquisition costs. That is however for your daughter to decide and, if she remains uncertain, she might wish to seek professional advice.

Fixtures and Fittings, as explained in our previous reply, if the value of individual assets was not itemised at disposal, apportionments on a just and reasonable basis would be expected. If, when preparing respective computation working sheets, you have collectively allocated such an apportionment to items of the same type, it would seem reasonable to enter these on one working sheet, with an explanation of your approach provided. You can see guidance here: 
     
CG15161 - Expenditure: allowable: cost of acquisition or creation

Thank you.