Budget 2009 – internally generated goodwill

Finance Bill 2009, cl. 69 seeks to put beyond doubt that internally generated goodwill of a business will be created in the course of carrying on a trade, and is subject to the rules determining whether goodwill is treated as being created before or after 2002.

If the trade began before the intangibles regime was introduced on 1 April 2002, the goodwill remains outside of the regime (and within the chargeable gains rules) for as long as it is held by the generating company or a related party. If, and when, disposed of to an unrelated party, the goodwill will then enter the 2002 regime in the hands of the acquiring company.

Where a company purchases goodwill post March 2002, that goodwill will fall within the intangibles regime where either the goodwill is acquired from an unrelated party (regardless of when the goodwill was originally created) or it is acquired from a related party (where the goodwill was originally created or acquired post March 2002).

If the acquiring company commenced trading before April 2002, a subsequent disposal of goodwill will fall to be apportioned between the company’s internally generated goodwill and the acquired goodwill.

Where there is a synergy argument, based on the line that the aggregate value of internal and acquired goodwill is greater than the sum of the parts, our interpretation is that the extra value will fall to be attributed to the internally generated goodwill of the business only.