What is the impact of goodwill when turning your business from a Sole Trader to a Limited Company?#AskAMS

At one time there were tax advantages to putting a high value on goodwill when incorporating a Sole Trader business into a Limited Company (tax relief on writing off the goodwill; and being able to draw out cash tax-free to the value of the goodwill).

Such goodwill would have applied to businesses that had a saleable value – e.g. they had a reputation, employed staff and sold goods, or services not dependent on the business owner. However, since December 2014, the tax advantages of putting a high value on goodwill in such circumstances have been taken away - and it is now actually better to have a low value for goodwill and the lower the better – because, now, the only way you can get tax relief on goodwill within a Limited Company is when you sell the business to a third party.