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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Partnership goodwill and negligible value claims

Occasionally a claim under TCGA92/S24 (2) may be made on the grounds that a partner’s interest in partnership goodwill has become of negligible value.

Guidance on goodwill is given at CG68000+. For guidance on:

  • Goodwill and negligible value claims, see CG68080
  • Goodwill and partnerships, see CG68100

Guidance on negligible value claims under TCGA92/S24 (2) is given at CG13120+.

TCGA92/S24 (2) allows the owner of an asset that has become of negligible value to treat the asset as if it had been sold and immediately reacquired for an amount specified in the claim.

A claim under TCGA92/S24 (2) in respect of a partner’s fractional interest in goodwill will not succeed unless the facts show that the entire goodwill of the partnership itself has become of negligible value.

Claims by partners under TCGA92/S24 (2) that the goodwill of a partnership has become of negligible value should be dealt with in accordance with the guidance at CG68080 subject to the following:

Dealing with claims under TCGA92/S24 (2)

In some cases, you may be able to point to previous transfers of goodwill which do not support a claim that partnership goodwill has become of negligible value. For example, evidence of payments for changes in interests in goodwill between incoming and outgoing or continuing partners. Alternatively there may be evidence that there has been a significant reduction in the scope of the partnership’s activities or that it has sustained adverse trading results.

If the recent history of the partnership does not support the claim it is unlikely that the value of the partnership goodwill and, in consequence, a partner’s fractional interest in it, have become of negligible value.

Where there is evidence that the business would survive a dissolution of the partnership, for example, where each of the partners is able to take with them the clients for whom they act, it is unlikely that the value of the partnership goodwill and, in consequence, the partners’ interests in it will have become of negligible value.

Any provision for the payment of an annuity or pension to retired partners or to the widows or widowers of partners who died in service is, effectively, provision for the purchase by the continuing partners of the outgoing partner’s fractional interest in goodwill. In those circumstances a partner’s fractional interest in partnership goodwill may be a valuable asset. CG28400+ gives guidance on partnership annuities.

If a partner whose fractional interest in partnership goodwill has become of negligible value wishes to backdate the date of the deemed disposal and reacquisition you should refer to the guidance at CG13130.

A claim by a partner under TCGA92/S24 (2) should be refused where the goodwill of the partnership’s business has not become of negligible value. Such a claim may be made where, for example, a Partnership Agreement has been amended or a new agreement has been entered into that provides:

  • that from a specified date either `all goodwill shall belong to the partnership’ or ‘no value should be attributed to goodwill’ or
  • that an incoming partner will not be required to make a payment for the acquisition of an interest in goodwill and/or
  • that an outgoing partner will not receive a payment on giving up his interest in goodwill.

A claim under TCGA92/S24 (2) in any of these circumstances should be refused because such an agreement between the partners cannot, in itself, result in the value of a partner’s interest in goodwill becoming negligible.

CG27500+ and CG27600+ explain the CG treatment when a partner’s fractional interest in an asset changes including changes arising when a new partner joins a partnership or an existing partner leaves.

The CG Technical Group should be consulted before a claim under TCGA92/S24 (2) is refused.