Depreciated replacement cost was not appropriate

The taxpayer bought five care homes as going concerns. A dispute arose as to the amounts to be determined as goodwill.

Broadly the greater the amount of the purchase price allocated to the properties under generally accepted accounting practice (GAAP) the smaller the amount that can be allocated to goodwill and therefore available for corporation tax purposes. Conversely the smaller the amount of the overall purchase price attributed to the properties the greater the amount that can be allocated to goodwill – resulting in higher deductions for corporation tax.

The taxpayer valued the properties using the depreciated replacement cost (DRC) method because it considered it was not possible to achieve a fair market value for the assets. HMRC disagreed saying that market value applied.

The First-tier Tribunal agreed with HMRC. The taxpayer appealed.

The Upper Tribunal said there was adequate evidence to support the...