The Chancellor today abolished the corporation tax deduction on the amortisation of goodwill that has been acquired as part of a business purchase.

This change will have a material impact on the economics of business acquisitions, where the tax deduction on acquired goodwill has been a major driver in businesses being acquired by way of an asset purchase (and not a share purchase).

The justification given for this change is to more closely align the tax treatment of asset purchases and share purchases in an M&A context. However, significant tax differences remain between the two (for example, there is only stamp duty on the acquisition of shares, and only one level of taxation for sellers on a share sale).

What is clear is that the interests of the buyer and seller will be more closely aligned going forwards, with a share sale increasingly looking like a more attractive proposition from a tax perspective.

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