Goodwill Amortisation: Claim Corporation Tax Relief on Acquisitions

What Is Goodwill and Why Does It Matter for Tax?

When you buy a business, you often pay more than the value of its physical assets. That extra amount — reflecting the business's reputation, customer relationships, and brand — is goodwill. For your limited company, goodwill is treated as an intangible fixed asset, and under certain conditions, the amortisation or impairment of that goodwill can be deducted against your corporation tax liability.

The Legal Framework: The Intangible Fixed Assets Regime

Goodwill relief for companies is governed by the Corporation Tax Act 2009, Part 8, which covers the intangible fixed assets (IFA) regime. HMRC allows a deduction for the accounting amortisation charged on qualifying goodwill — but only where that goodwill was acquired from an unrelated third party on or after 1 April 2002.

A critical restriction applies: goodwill acquired from a related party — such as a sole trader or partnership selling their business into their own limited company — does not qualify for relief under the IFA regime. This rule was tightened significantly in July 2015 and remains in place as of June 2026.

What Rate of Relief Can You Claim?

Where goodwill qualifies, your company can claim a corporation tax deduction equal to the amortisation charged in your accounts. If your accountant amortises goodwill over ten years on a straight-line basis, you deduct one-tenth of the cost each year against your profits.

Alternatively, if your company does not amortise goodwill in its accounts (for example, where it is held at cost under FRS 102 with an indefinite useful life), you can elect to claim a fixed-rate deduction of 6.5% per year on a straight-line basis under the IFA regime rules. This election must be made in your company tax return.

Key Conditions to Check Before Claiming

• Acquisition must be from an unrelated third party. You cannot claim relief on goodwill bought from a person or entity connected to the company, including the company's own shareholders or directors.
• Goodwill must have been acquired, not internally generated. You cannot amortise goodwill your company has built up itself — only purchased goodwill qualifies.
• The acquisition must post-date 1 April 2002. Pre-2002 goodwill sits outside the IFA regime entirely.
• The goodwill must appear on your balance sheet. It needs to be properly recognised as an intangible fixed asset in your statutory accounts.

What About Disposals?

When your company later sells the business or the goodwill, any profit on disposal is brought back into charge under the IFA regime as a chargeable gain on intangibles. This is taxed as part of your company's trading profits at the standard corporation tax rate — currently 25% for profits over £250,000, or the small profits rate of 19% for profits up to £50,000, with marginal relief in between.

Practical Steps for Directors

• When structuring a business acquisition, ask your solicitor to clearly identify and separately value goodwill in the sale and purchase agreement.
• Confirm with your accountant whether the goodwill meets the IFA regime conditions before relying on amortisation relief.
• Decide whether to amortise goodwill in your accounts or use the 6.5% fixed-rate election — your accountant can model which gives the better cash-flow benefit.
• Keep all acquisition documents, including due diligence reports and valuations, as HMRC may request evidence that the vendor was genuinely unconnected.

Get Advice Before You Complete a Deal

Goodwill amortisation relief can be worth tens of thousands of pounds over the life of an acquisition, but the rules are technical and the connected-party trap catches many directors off guard. Always take specialist tax advice before completing a business purchase to ensure the structure qualifies and you are not leaving relief on the table.