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HMRC internal manual

Capital Gains Manual

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Goodwill: market value of goodwill as at 31 March 1982

If a valuation of goodwill is required for rebasing or indexation purposes TCGA92/S35 (2) and TCGA92/S55 (1) deem the asset to be disposed of and immediately reacquired on 31 March 1982 at its market value on that date.

Market value in relation to any assets is defined in TCGA92/S272 (1) as being:

the price which those assets might reasonably be expected to fetch on a sale in the open market.
The effect is that a valuation of goodwill is made on the assumption that the business was put on sale as a going concern in the open market on 31 March 1982. If you require a valuation of goodwill at some other date, for example for the purposes of TCGA92/S162, similar assumptions apply.

Statutory fictionsA “statutory fiction” is an event which never happened but which is deemed to have occurred for a specific legislative purpose.

Statutory fictions are common in both tax and general law and the Courts have made it clear on a number of occasions that there are limits to the deeming which is necessary to make the fiction work. It is necessary to consider:

  • what the purpose of the particular fiction is
  • who is involved in the fiction
  • what conditions are necessary for the fiction to work, and
  • what consequences naturally flow from the fiction.There is a useful review of the case law on statutory fictions and extracts from the relevant parts of the judgments in Marshall v Kerr, 67TC56. Applying these limits in the context of a valuation for CG purposes was described as “the correct approach” in the House of Lords.

In arriving at a 31 March 1982 valuation you should have regard only to the situation which would have existed had the goodwill actually been put on the market at that date. You cannot assume that the conditions in existence at the time of disposal would have applied in March 1982 unless there is evidence that they did. The method of computation used has to be one that was appropriate to the position in 1982.

The benefit of hindsight cannot be used in arriving at a 31 March 1982 valuation, therefore, it is not appropriate to start from the actual sale proceeds of goodwill and scale them back by reference to any particular index such as the RPI. The RPI reflects the increase in prices of various consumer goods and services but it does not reflect the changes in the prices at which businesses change hands.

The information on which a 31 March 1982 valuation should be based will vary from case to case but, in general terms, the starting point will be the business accounts which had been produced by 31 March 1982. The use of accounts for periods up to or including 31 March 1982 but produced at a later date should be accepted only if justified by the facts of the case whilst accounts for periods ending after 31 March 1982 should be used with caution.

Valuations of goodwill can be obtained from Shares and Assets Valuation (SAV), see CG68300+.