Compensation not for goodwill

The taxpayer company sold Mercedes cars under a dealer franchise agreement with Daimler-Chrysler (UK) Ltd – which decided in 2000 to terminate the contract on 12 months’ notice.

The taxpayer challenged the notice and a settlement was reached under which it was agreed the dealership would end on 30 June 2003 and the taxpayer would be entitled to an enhanced territory release payment.

The taxpayer company made a transfer agreement with another dealer Leadley which £1.7m part of which included the territory release payment. The rest covered the assets of the business.

HMRC said part of the payment was for goodwill and the balance was to compensate the taxpayer for the early termination of its dealership. Only the part relating to goodwill qualified for rollover relief under TCGA 1992 s 152.

The First-tier Tribunal allowed the taxpayer’s appeal. The matter moved up to the...