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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Assets held on 6/4/65: alternative apportionment of overall gain: example

TCGA92/SCH2/PARA16 (5)On 6 April 1960 X opened a newsagent’s shop without taking over an existing business. On 6 April 1964 X bought a newspaper round from a competitor for £500. On 6 April 1990 X sold the whole business under a contract which allocated £20,000 (net) to goodwill (accepted as the true market value). The market value of the business at 31 March 1982 was £10,000.

It is estimated that the market value of the round bought in 1964 was £5,000 at the date of disposal and £2,500 at 31 March 1982.

The overall gain on the old rules on the disposal of goodwill is

£20,000 - £500 - £5,750 = £13,750
             

where the indexation allowance is £10,000 x 0.575 = £5,750.

The part of the gain attributable to the newspaper round is

£5,000 - £500 - £1,438 = £3,062
             

where the indexation allowance is £2,500 x 0.575 = £1,438.

The gain on the old basis attributable to the goodwill of the original business is, therefore,

£13,750 - £3,062 = £10,688
         

The chargeable gain on the old basis is, therefore

25 x £10,688 + 25 x £3,062 = £11,850
                 
30       26        

The final step in the computation would be to make the comparison with the rebased gain, see CG16730+.