Readers' forum : Goodwill hunting

We have a new client company. Previously the business was carried on by the husband and wife trading in partnership and it was incorporated on 31 December 2012. The business including goodwill was transferred to the limited company with the husband and wife becoming sole shareholders. Gift holdover relief was claimed on the gain made on the goodwill under TCGA 1992 s 165 and HMRC’s HS295 helpsheet was reviewed.

The value of the goodwill was shown as an asset of the company and the corresponding amount was credited to the directors’ loan accounts. The directors now wish to draw from these accounts instead of paying dividends.

What are the tax consequences of doing so and could HMRC now challenge the nature and value of goodwill transferred on incorporation?

I look forward to receiving responses from Taxation readers.

Query 18 933– Partners.

Reply by Pete Miller...