If the sale of a business includes the sale of land, then part of the goodwill associated with the business may be subject to SDLT. For instance, if hotels, restaurants, bars and petrol stations are sold and the business premises are included, it is usual to apportion the purchase price between goodwill, fixtures and fittings, and the physical property asset itself. The point to appreciate is that there is also likely to be a charge for SDLT on the element of goodwill – irrespective of how the contractual documentation is structured.

HMRC draw a distinction between ‘moveable goodwill’ and ‘embedded goodwill’ (sometimes referred to as ‘inherent’, ‘adherent’ or ‘immovable’ goodwill). It is only the embedded goodwill (not the moveable goodwill) which attracts SDLT.

Moveable goodwill does not form part of the land. It would for instance include goodwill that attaches personally to the seller (eg a liquor licence, or a Michelin rating). Conversely, embedded goodwill is part of the property and will be subject to SDLT. In practice it is important to examine the nature of the goodwill early on in the transaction and ensure that there is a clear distinction in the contract documentation between moveable and embedded goodwill. It is also essential to gather independent supporting evidence (eg valuations) of each type of goodwill to substantiate that apportionment. If SDLT is not paid on the embedded goodwill (or if the apportionment is shown to be wrong) then the rules on extended inquiry periods will come into force and HMRC may inquire into the matter for up to six years. Plus, interest and penalties will be payable on any underpayment.

The moral of this is that if the sale of a business includes land and goodwill, and an element of the goodwill is moveable, then that needs to be addressed early in the transaction, with the different categories of goodwill clearly identified in the contractual documentation. Source: Berwin Leighton Paisner. © Practical Lawyer