steveF1

After 17+ years in the US, my wife (USC) and I (dual) are moving back to the UK. Time for National Trust, country roads and pubs! For the last 14 years we've run a consulting company as S Corp. and we're passing on our clients to a US company with payments based on revenue over time and classified as goodwill for tax purposes. Business 100% wife's name but can change that to 50/50. I believe they would be considered capital gains. Any views on how HMRC will view these payments? Grateful for any advice. Thanks!

Editha

Sell your business before you move back to the UK and there won't be any CGT liability.

cyrian

Complicated!!
As USC you need to complete a US tax return each year.
You could perhaps ask your accountant how the IRS would view your arrangement.
I think that HMRC would not accept this periodic payment as a Capital Gain because you are not disposing of an asset but receiving a payment.
Depending on the size of these payments, it perhaps not a big deal if it is CGT or income tax because the exemptions and tax rates are similar.
If you split the payments equally between the two of you then CGT exemption is £11.1k (per person i.e. £22.2k) and 18% above that.
Income tax exemption is £11k (per person i.e. £22k) and 20% above that.
You should look at the US - UK double tax treaty for more info.
Happy reading.

steveF1

Thanks, Editha. Payments are over a period of years so we'll have UK CGT liability.

steveF1

Cryrian, thanks for your comments. Payments for US purposes are considered Goodwill as they are intangible assets. It's the relationship we're transfering. As you mention, it may not be a big deal depending on the payments. The difference is CG - no NI contributions, income - NI contributions, class 2 and 4.

cyrian

That depends on how HMRC defines them. You may have to argue your case with HMRC.
If the payments are made in the USA and you simply transfer your money to the UK then - depending on the USA - UK tax treaty - there is unlikely to be any further tax liability.
NIC is only paid on earned income and not other income like pensions or investment income or dividends etc.
As I said - complicated.
For example, if I have a particular item on my tax return, my accountant would declare what "in his opinion" my tax liability would be subject to the agreement of HMRC.
In the UK, most people do not complete a tax return because everything is deducted by PAYE. However, as you would have overseas income, I think that you would be required to complete one.

Editha

There is an accountant around here somewhere who might be able to help, but otherwise I think you are going to need professional advice. My guess would be that the payments will be taxable, either as income or capital gains. It's probably better from your point of view if it is capital gains.

morpeth

This is a structural issue that a good international accounting firm such as PW could work out, though it appears the deal already has been signed. The issue of goodwill in the US I assume is to benefit the purchaser, though I find it a bit curious that the future payments couldn't have been tied to a stock deferred sale which would have given you the capital gains treatment I suspect in the UK.

steveF1

The goodwill in the US is not to the benefit of the purchaser as they have to amortize the payments over 15 years; it is to my benefit in the US. We are not selling the company so stock deferred sale wouldn't be an option.

lf1

If you need professional advice then I would recommend

KIERAN LYNCH FCA, FCCA, CTA. CHARTERED ACCOUNTANT AND CHARTERED TAX ADVISER, Alsager Cheshire

I have used him to handle by UK and CDN tax issues after returning to the UK and he also handles US taxes for expats. I used a much larger firm, whilst still in Canada, on UK/CDN tax matters, but it wasn't until I found this accountant that I got advice that I needed.

Good luck.

morpeth

I would have thought the different tax treatment to the purchaser of classifying part of purchase as goodwill a distinct benefit to them, I know of a few transactions where the purchaser has wanted to structure some payments as goodwill for that reason. However of course I don't know details of the transaction.

As far as structuring the sale of company stock or in form of a subsidiary to defer tax impact and structure as capital gains, if that is not an option ( surprised it isn't) , pity not structured in that way though as you point out some questions on UK side.

steveF1

Thanks lf1. I had a useful conversation with Kieran and appreciate the recommendation.

My best.