HMRC and trade related properties

Owners of trade-related properties (“TRPs”) face a particularly difficult task in persuading HMRC that there is any goodwill attaching to a TRP on incorporation (see previous Newsdesk item “Goodwill to all men – part 1?” for a general discussion on goodwill).

What is a TRP? Essentially one where its business is, to quote HMRC “largely or wholly incapable of being sold separately from the property”. Examples include public houses, nursing homes, petrol stations and hotels. Until fairly recently, it has been received wisdom that no goodwill existed in such businesses. However, a decision of the Special Commissioners in the Balloon Promotions Limited case, allowing that some goodwill had been created in the subject business through its attracting a regular customer base, has caused HMRC to re-consider its position.

Currently, HMRC advises that “if a business carried out from a TRP is sold as a going concern then the sale price is likely to include some goodwill but the sum attributable to goodwill will depend on the facts of each case”. It admits to “a backlog of unresolved interventions” where previous decisions in this area are being re-visited.

This does not mean that owners of TRP’s claiming goodwill on incorporation will have an easy ride in the future. HMRC’s reluctant reappraisal of this issue while welcome is qualified and it will still be necessary to build a credible case for any goodwill valuation based upon the specific circumstances of the business being incorporated.