TaxPersonal TaxPre-Budget statement: Goodwill change could force up prices of businesses

Pre-Budget statement: Goodwill change could force up prices of businesses

Businesses risk becoming more expensive to acquire as a result of Gordon Brown's indication in the pre-Budget statement that goodwill will be subject to tax relief, according to proposals under consultation.

The government has been consulting on allowing intellectual property to be tax deductable on purchase, but had also put forward the more radical proposal of making goodwill tax deductible.

This is a measure which experts believe would ‘change the face of all thinking about tax when it comes to acquisition and structuring of purchases’.

However, while selling goodwill will be tax deductible, buying it will become a taxable gain, the end result of which, according to Richard Baron, deputy head of the Insitute of Director’s policy unit, will higher purchase prices.

Baron said: ‘It’s a bold decision and probably the right one. It would have been a lot easier if you leave goodwill out of the proposal.’

A technical note has now been issued by the Inland Revenue with ‘firmer options’ for taking the reform forward after more than 80 responses were received to the original consultation paper.

However, for the measure to go forward experts anticipate a raft of rules and regulations to ensure that what is identified as goodwill is legitimate.

Chas Roy-Chowdhury, head of taxation at the ACCA, said: ‘Our fear is that you end up with too much of a compliance requirement around this measure.’

Analysis: Pre-Budget report preview Analysis: Pre-Budget report preview

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