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HMRC internal manual

Capital Allowances Manual

Know-how: Receipts: Goodwill treatment

ICTA88/S531 (2) - (3), ITTOIA/S194

Where know-how is disposed of along with a trade or a part of a trade the transaction is treated as a sale and purchase of goodwill.

The buyer is treated as having paid a capital sum for goodwill. This means that the amount paid by the buyer will not qualify for know-how allowances.

The seller is treated as having sold goodwill for a capital sum. This means that no disposal value is brought to account in the seller’s capital allowance computation. There may be a capital gain because the sale is treated as a sale of goodwill.

Goodwill treatment does not apply in these two cases:

  1. to both the buyer and the seller where the buyer and seller jointly elect that it should not apply;
  2. to the buyer where the trade was carried on wholly outside the United Kingdom before the acquisition of the know-how.


The election in (a) has to be made within two years of the disposal.

An election to avoid goodwill treatment may not be made if the sale is a control sale. This means that if know-how is sold together with a trade or part of a trade and the sale is a control sale the buyer and seller cannot elect to avoid goodwill treatment.

Where an election to avoid goodwill treatment is made the payment made by the person acquiring the know-how will normally qualify for writing-down allowances. The buyer will have incurred capital expenditure on the acquisition of know-how which is not otherwise deductible for Income Tax or Corporation Tax purposes CA71000. Treat the seller as receiving a trade receipt or, where appropriate (for example, if the whole of the trade has been disposed of), as receiving a profit or gain chargeable under Case VI of Schedule D for a company or ITTOIA/S583.

You may get a claim from a seller that a sale of know-how should be treated as a sale ofgoodwill. If it is not clear that a trade or part of a trade (for example, a branch) has been disposed of, or there is reason to believe that the buyer may not agree, you should consult CT&VAT (Technical).