Tax relief for goodwill bought by a company

A company that buys goodwill or customer lists on or after 1 April 2019 gets corporation tax relief at a fixed 6.5% of cost a year, but only if it bought a business that included qualifying intellectual property such as patents or copyright, and only up to six times the cost of that IP. Goodwill bought from a related individual or partnership, which covers most incorporations, gets no annual relief at all unless a narrow third party acquisition exception applies.

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Which assets are caught by the goodwill rules?

The restrictions apply to “relevant assets”, defined in section 879A of the Corporation Tax Act 2009 (CTA 2009). HMRC’s Corporate Intangibles Research and Development Manual at CIRD44060 lists them:

goodwill;
customer information of a business;
customer relationships, contractual or not;
unregistered trade marks or signs used in the business;
licences of any of these.

HMRC explains that the list exists because modern accounting standards recognise customer lists and similar items separately, where old UK GAAP would have left them inside goodwill. Without the wider definition, relabelling part of the price as a customer list would have escaped the restriction. So the split of the purchase price in the accounts, discussed in customer lists and brands acquired in a deal, does not change the tax answer for these assets.

How has relief for goodwill changed over the years?

The date the company acquired the goodwill decides which rules apply, and CIRD44050 and CIRD44055 set out the history.

Acquired	Annual relief
Before 3 December 2014	Continues in line with the accounts (or a 4% election)
3 December 2014 to 7 July 2015	Denied where bought from a related individual or firm, including on incorporation
8 July 2015 to 31 March 2019	None, even from an unrelated seller
On or after 1 April 2019	6.5% of cost a year, subject to the conditions below

Goodwill of a long established business can sit outside the regime altogether. Section 884 CTA 2009 treats goodwill as created before 1 April 2002 if the business was carried on at any time before that date by the company or a related party. Such goodwill remains a chargeable gains asset. HMRC’s CIRD44055 also confirms that a tax neutral transfer, such as between group companies, on or after 1 April 2019 does not upgrade goodwill caught by the earlier rules.

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How does the 6.5% fixed rate work?

Section 879B treats the company as having made the fixed rate election in section 730, and replaces the normal 4% with 6.5%. Relief therefore ignores the amortisation or impairment in the accounts. Each period the deduction is the lower of 6.5% of cost and the remaining tax written down value, as HMRC’s example at CIRD44093 shows. Cost is relieved over a little more than 15 years: 15 full years at 6.5% relieve 97.5%, and the balance falls into the sixteenth.

The relief is available only where both of these are met (CIRD44065 and CIRD44080):

the relevant assets were acquired as part of the acquisition of a business. HMRC accepts that a business was acquired where purchased goodwill is, or could be, recognised under generally accepted accounting practice;
the acquisition included qualifying IP assets, which section 879J limits to patents, registered designs, copyright, design rights, plant breeders’ rights, foreign equivalents and licences of them.

Trade marks and know how are not qualifying IP, and nor is a software licence that does not allow the buyer to make, adapt or supply the software (CIRD44060). The IP must also be acquired for use on a continuing basis in the business; IP the buyer does not intend to use does not count. A service business bought with no registered designs, patents or meaningful copyright produces goodwill with no annual relief.

What is the six times cap?

Under section 879M, where the cost of the relevant assets exceeds six times the cost of the qualifying IP bought with them, relief is scaled down. CIRD44086 explains that cost includes capitalised and non capitalised amounts. CIRD44093 sets out the steps: work out the relevant amount (six times the IP cost divided by the relevant asset cost), work out the 6.5% debit as if there were no restriction, then multiply the two.

Illustration only. A company buys a design business for £800,000, of which £700,000 is goodwill and customer relationships and £100,000 is registered designs and copyright. Six times the IP is £600,000, so the relevant amount is £600,000 divided by £700,000, or 6/7. The unrestricted debit is £700,000 x 6.5% = £45,500, and the allowable debit is £45,500 x 6/7 = £39,000 a year. Over the life of the asset the company relieves £600,000 of the goodwill under the fixed rate rules; the rest waits until the goodwill is realised. The IP itself is relieved separately under the normal intangibles rules.

Why is relief usually denied when a business incorporates?

Section 879K imposes a full restriction where a company acquires a relevant asset on or after 1 April 2019 from an individual or a firm that is a related party, unless the third party acquisition condition is met. Under section 835 a related party includes a participator in a close company and that participator’s associates, so a sole trader or partners selling their business to their own company are caught. HMRC says at CIRD44083 that the restriction is expected to apply to most related party incorporations.

The third party acquisition condition is met only where the individual or firm itself bought all or part of the business, with its goodwill, from an unconnected person, and the company then acquires the whole of that business. Even then, CIRD44083 says the exception applies only to the extent the purchased goodwill still had a residual accounting value at the time of incorporation. An acquisition is not a third party acquisition if a main purpose was a tax advantage, or if it took place between 8 July 2015 and 31 March 2019.

Where the condition is met, section 879N gives a partial restriction. HMRC’s example at CIRD44090: a firm bought goodwill for £100,000 from an unconnected individual and was writing it off over five years. When it incorporated 18 months later its notional book value was £70,000, and the company recognised goodwill of £280,000. The relevant amount is £70,000 divided by £280,000, or 0.25, so only a quarter of the 6.5% debit is allowed. The capital gains side for the individual is in selling goodwill to your own company.

What happens to the cost if annual relief is denied?

A full restriction under section 879C (pre 2019 assets), 879I (no business or no qualifying IP) or 879K (related party) blocks all debits under Chapter 3, including writing off as incurred, amortisation in the accounts and the fixed rate, and debits from a change of accounting policy under Chapter 15 (CIRD44070). The cost is not lost: it is deducted when the goodwill is realised, under Chapter 4.

A loss on realisation is treated as a non trading debit. CIRD44070 explains that it can be set against total profits of the same period, surrendered as group relief or carried forward, but it cannot be carried back against profits of earlier periods, because it is not a trading loss.

What mistakes come up most often?

Deducting the accounts amortisation on goodwill bought since April 2019 instead of a fixed 6.5% of cost.
Claiming 6.5% on a business acquisition that included no qualifying IP, or only trade marks and know how.
Booking goodwill at full value on incorporation and claiming the deduction in the company, when section 879K usually denies it.
Reclassifying goodwill as a customer list to escape the rules; both are relevant assets.
Treating goodwill of a business that traded before April 2002 as within the intangibles regime.
Ignoring the six times cap when the price is mostly goodwill and the IP is modest.

The wider regime, including how sales of goodwill are taxed, is covered in intangible assets: the corporation tax regime.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.