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22 November 2000
The practice in which my chartered surveyor client is a partner has recently acquired a smaller practice. The payment for the goodwill of this smaller practice is deferred so that there will be payments after one year and two years based on one-half of fees billed.
My client is currently entitled to one-fifth of the profits and the goodwill of the firm; but when he was first appointed an equity partner, his profit share and entitlement to goodwill was only one-tenth. The history of the base cost of his goodwill is as follows:
£
1984 Purchased
My client is currently entitled to one-fifth of the profits and the goodwill of the firm; but when he was first appointed an equity partner, his profit share and entitlement to goodwill was only one-tenth. The history of the base cost of his goodwill is as follows:
£
1984 Purchased
The practice in which my chartered surveyor client is a partner has recently acquired a smaller practice. The payment for the goodwill of this smaller practice is deferred so that there will be payments after one year and two years based on one-half of fees billed.
My client is currently entitled to one-fifth of the profits and the goodwill of the firm; but when he was first appointed an equity partner, his profit share and entitlement to goodwill was only one-tenth. The history of the base cost of his goodwill is as follows:
£
1984 Purchased
one-tenth 100,000
1988 One-tenth of goodwill
of a practice acquisition
(paid by the practice) 5,000
1992 Purchased further
one-tenth 100,000
2000 Estimated cost of one-
fifth of recent practice
acquisition (payable
by the practice) 50,000
£255,000
He is now reducing his involvement in the firm. In the process, he is reducing his share of the profits and entitlement to goodwill to one-eighth in return for the receipt of £120,000.
The client will need to report the capital gain incurred on his tax return without knowing the final amount to be paid for goodwill for the latest acquisition. Do we estimate the amount to be paid? If our estimate is low, will he be charged interest by the Revenue?
In calculating the overall gain utilising the part disposal formula, do we utilise the total base cost on a 'pooling' basis or take the early acquisitions on a first in first out basis? Does the change in the client's profit share from one-tenth to one-fifth affect the calculation in any way?
(Query T15,727) – Mr Badwill.
My client is currently entitled to one-fifth of the profits and the goodwill of the firm; but when he was first appointed an equity partner, his profit share and entitlement to goodwill was only one-tenth. The history of the base cost of his goodwill is as follows:
£
1984 Purchased
one-tenth 100,000
1988 One-tenth of goodwill
of a practice acquisition
(paid by the practice) 5,000
1992 Purchased further
one-tenth 100,000
2000 Estimated cost of one-
fifth of recent practice
acquisition (payable
by the practice) 50,000
£255,000
He is now reducing his involvement in the firm. In the process, he is reducing his share of the profits and entitlement to goodwill to one-eighth in return for the receipt of £120,000.
The client will need to report the capital gain incurred on his tax return without knowing the final amount to be paid for goodwill for the latest acquisition. Do we estimate the amount to be paid? If our estimate is low, will he be charged interest by the Revenue?
In calculating the overall gain utilising the part disposal formula, do we utilise the total base cost on a 'pooling' basis or take the early acquisitions on a first in first out basis? Does the change in the client's profit share from one-tenth to one-fifth affect the calculation in any way?
(Query T15,727) – Mr Badwill.
