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The last post?

I have a client who purchased a post office in 1990; the purchase price included £35,000 for goodwill. Due to the current policy of the authorities, the post office has now been closed. My client received a payment from the Post Office well in excess of £35,000 and the Post Office informed him that the Inland Revenue has agreed that the first £30,000 of such payments is tax free, leaving a substantial amount supposedly taxable as compensation for loss of office.

My client has been assessed under Schedule D, Case I on the income from the post office as is the custom and he is wondering whether the payment from the Post Office can be regarded as a payment for the loss of goodwill and hence subject to capital gains tax. With the reliefs available for business assets, the capital gains tax liability would then be minimal. If the amount is taxable as income, there will be a substantial loss in respect of the previous purchase of goodwill and we are not anticipating any future capital gains against which this could be set.

My client argues that, but for the policy of closing post offices, he could have sold the business on the open market, would possibly have received more and could claim the appropriate capital gains tax reliefs.

Readers' advice would be welcome.

(Query T16,466)

Issue: 3972 / Categories: