Understanding Goodwill Valuation Principles for Business Sales by WRA and HMRC

Valuing goodwill for Land Transaction Tax when a business property is sold

When a business is sold as a going concern with land or buildings, Land Transaction Tax only applies to the part of the price that relates to the land transaction, not to genuine goodwill as a separate business asset. The Welsh Revenue Authority says goodwill should be worked out by valuing the business as a going concern and then deducting the value of the separately identifiable assets included in the sale.

• Goodwill is the extra value in a trading business, such as its reputation, customer base, location, or trading history.
• For trade related properties such as pubs, hotels, petrol stations and post offices, the property value is often closely linked to the business’s trading potential.
• The WRA follows HMRC principles and treats goodwill as the difference between the going concern value of the business and the value of the separately identifiable assets.
• Separately identifiable assets may include land and buildings, fixtures and fittings, stock, equipment and other business assets.
• The amount treated as goodwill must be supported by proper valuation evidence and cannot simply be whatever figure the parties choose to label as goodwill.
• If the sale is not at arm’s length, the agreed price may not be reliable, so an arm’s length value must be established before calculating goodwill.

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How goodwill is valued for LTT when a business property is sold as a going concern

This page explains how the Welsh Revenue Authority approaches goodwill in the sale of a business that includes land or buildings. This matters because Land Transaction Tax applies to chargeable consideration for land, not to genuine goodwill as a separate business asset. The practical question is often not whether goodwill exists, but how much of the overall price properly belongs to it.

What this rule is about

When a business is sold as a going concern, the buyer may be paying for more than just the land, buildings, fixtures, and other identifiable assets. Part of the price may reflect the business’s ability to generate profit from its existing reputation, customer base, location, or trading history. That additional element is commonly described as goodwill.

The difficulty is working out how much of the total price relates to the land transaction and how much relates to goodwill. This is especially important for trade related properties, where the value of the property is closely linked to the business carried on from it.

What the official source says

The WRA says it follows the same principles as HMRC on valuing goodwill. It accepts that a sale of a business as a going concern may include goodwill. The key issue is valuation, not existence.

According to the source material, goodwill is the difference between:

• the value of the business as a going concern, and
• the value of the separately identifiable assets included in the sale.

For trade related properties, the WRA considers that goodwill should be found by deducting the value of the separately identifiable assets from the value of the business as a going concern.

The source refers to the RICS definition of a trade related property as real property designed for a specific type of business where the property value reflects the trading potential for that business. Examples given include pubs, hotels, petrol stations and post offices.

The source also says that the value of the business as a going concern will usually be the actual open market sale price. But if the transaction is not at arm’s length, an arm’s length value must be established instead.

What this means in practice

If a buyer acquires a trading business together with its premises, the total price may include several elements:

• the land and buildings
• fixtures and fittings
• stock or other business assets
• goodwill

For LTT purposes, it is important to separate these elements properly. The WRA’s approach is that goodwill is not simply whatever amount the parties choose to label as goodwill. It must be supported by a valuation exercise based on the actual facts.

In some transactions, goodwill may be small or merely nominal. In others, especially where the business has a strong trading record or a valuable customer following, it may be substantial. There is no fixed percentage or standard formula that applies to every case.

The practical effect is that a business sale involving land should not be analysed only by looking at the contract wording. The allocation of price needs to reflect the real value of the different assets being transferred.

How to analyse it

A sensible way to approach the issue is to ask the following questions:

• Is the business being sold as a going concern, rather than just a property with no continuing trade?
• Does the transaction include a trade related property, where value is linked to trading potential?
• What are the separately identifiable assets included in the sale?
• What is the value of those identifiable assets on the facts?
• What is the value of the business as a going concern?
• Was the sale at arm’s length, or is an independent arm’s length valuation needed?

Under the WRA’s stated approach, goodwill is then the balance left after deducting the value of the separately identifiable assets from the going concern value of the business.

This means the analysis usually starts with the overall business value, not with an assumption that goodwill is absent. The next step is to identify and value the assets that can be separately recognised. Whatever remains may represent goodwill, provided that conclusion is supported by the facts.

Example

This is an illustration only. A hotel business is sold together with the hotel building, fixtures, equipment, and the benefit of the established trade. The open market price for the business as a going concern is the agreed sale price. If the land, building, fixtures, equipment, and other separately identifiable assets are valued and those values do not account for the full price, the remaining amount may represent goodwill. That residual figure could reflect the hotel’s established reputation, repeat custom, and proven trading potential.

If, however, the transaction was between connected parties or otherwise not at arm’s length, the agreed price may not be a reliable measure of the going concern value. In that case, the WRA’s approach requires an arm’s length value to be established before goodwill can be calculated.

Why this can be difficult in practice

Goodwill valuation is highly fact-sensitive. The source material makes clear that the answer will vary depending on the type of property and its use. That is particularly true for trade related properties, where the property and the business are closely linked.

There can also be difficulty in identifying which assets are truly separate and what they are worth. A low or high figure for those assets will directly affect the residual amount treated as goodwill.

Another difficulty arises where the sale is not at arm’s length. In those cases, the actual price may not reflect open market value, so the starting point itself becomes uncertain.

A further practical point is that the existence of goodwill does not answer the tax question on its own. The important issue is the amount properly attributable to goodwill on a supportable valuation basis.

Key takeaways

• For LTT purposes, the key issue is usually the value of goodwill, not whether goodwill exists at all.
• On the WRA’s approach, goodwill is the difference between the going concern value of the business and the value of the separately identifiable assets included in the sale.
• Where the transaction is not at arm’s length, an arm’s length value must be established instead of relying on the agreed price.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding Goodwill Valuation Principles for Business Sales by WRA and HMRC

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