Goodwill on transfer of businesses

The taxpayer owned the freeholds of two nursing homes and operated both as a sole trader. In 2010 she incorporated three companies two as wholly-owned subsidiaries of a parent in which she was the sole shareholder. She then transferred the care homes to the subsidiaries. The transfers included the grant of five-year leases of the properties with no premium. The sale agreement also included deeds assigning the goodwill of the businesses to the companies for a total of £1.8m.

HMRC challenged the figures for goodwill saying that what was described as consideration for goodwill was in reality part of the value of the leases.

The Upper Tribunal (Lands Chamber) allowed the taxpayer’s appeal so HMRC appealed.

Both parties called expert evidence. Both experts agreed that the care homes were trade related properties so that the leasehold interests had to be valued using the profits method of...