What is negative goodwill?
Answered 17 March 2026
What is Negative Goodwill?
HMRC Guidance / Practice
Definition
Negative goodwill arises in the context of a business acquisition where the cost of the business is less than the aggregate fair value of the identifiable assets and liabilities acquired — i.e., the buyer pays less than the net value of what they receive. Put another way, where the aggregate of the fair values attributable to the identifiable assets and liabilities exceeds the total price paid for the business, the excess is accounted for as negative goodwill.
Causes
Negative goodwill is generally attributed to two possible causes:
- A genuine bargain purchase — for example, as a result of a distress sale.
- A reduction in purchase price to account for future costs or losses not yet sufficiently certain to be recognised as liabilities at the date of acquisition.
Accounting Treatment
The accounting treatment differs depending on the applicable standard:
- Under UK GAAP (FRS 102): Negative goodwill is recognised and separately disclosed on the balance sheet as a negative figure, immediately after any positive goodwill, and is subsequently credited to the profit and loss account in the periods in which the non-monetary assets are recovered (e.g., by sale or depreciation), with any excess over the fair value of non-monetary assets recognised in the periods expected to be benefited.
- Under IFRS 3: Negative goodwill is recognised immediately in the profit and loss account at the acquisition date as a gain on a bargain purchase.
Tax Treatment
Negative goodwill is not itself within CTA 2009 Part 8 (the intangible fixed assets regime). However, sums written off negative goodwill may be taxable credits where, exceptionally, the negative goodwill is referable to intangible assets within Part 8.
Specifically, CTA09/S724 provides that a credit to the profit and loss account in respect of writing off negative goodwill is only taxable insofar as it is attributable to intangible fixed assets. This is because tax relief under Part 8 will eventually be obtained for the full fair value of the intangible fixed asset — but where negative goodwill arises from the attribution of a fair value to that asset, part of that fair value represents a sum not matched by any part of the consideration actually paid. Taxing the release of negative goodwill therefore ensures that tax relief does not represent consideration only notionally paid out.
⚠️ HMRC notes that if the treatment of negative goodwill is relevant to a tax computation, it is advisable to seek the advice of an HMRC advisory accountant.
Citation sources
As explained in CIRD12735, where a company acquiring a business accounts for the assets and liabilities of that business (see CIRD30120), the aggregate of the ‘fair values’ attributable to the identifiable assets and liabilities of the business may well differ from the total price paid for the business. Where the aggregate of the fair values is less than the total price paid for the business the difference is accounted for as goodwill. More rarely, the aggregate of the fair values may exceed the
Where a company acquiring a business accounts for the acquisition in accordance with GAAP, the values it assigns to the acquired goodwill and other intangible assets are to be adopted for the purposes of Part 8. GAAP requires the individual assets and liabilities of the business (excluding goodwill) to be valued at their fair value. The aggregate value of the specific assets and liabilities is then compared with the total consideration given for the business. Any excess of the consideration give
In circumstances where the cost of the business is less than the aggregate fair value of the identifiable assets and liabilities acquired, negative goodwill will arise. Negative goodwill is generally attributed to two possible causes. The first is where a genuine bargain has been obtained, for example as a result of a distress sale. The other is where the purchase price is reduced to take account of future costs or losses that are not yet sufficiently certain to be recognised as liabilities at t
Part 8 applies to goodwill per the meaning it has for accounting purposes, and this includes negative goodwill. CTA09/S724 specifically provides that a credit to the profit and loss account in respect of writing off negative goodwill is only taxable insofar as it is attributable to intangible fixed assets. This is because: Tax relief under Part 8 will eventually be obtained for the full amount of the fair value of the intangible fixed asset. However, when negative goodwill arises as a result of
The price of a business will usually exceed the net value of its assets and liabilities but that is not always the case. Where the aggregate value of the assets exceeds the price paid for the business the difference is known as ‘negative goodwill’. This is a credit entry in a company’s balance sheet. Negative goodwill is not itself within Part 8 but sums written off negative goodwill may be taxable credits where, exceptionally, the negative goodwill is referable to intangible assets within Part
r values of the non-monetary assets acquired should be recognised in the profit and loss account in the periods expected to be benefited. The accounting treatment of negative goodwill under IFRS 3 is different to that under FRS 102 Section 19. IFRS 3 requires immediate recognition of negative goodwill in profit or loss. In these situations profit elements should appear in the profit and loss account. However these may not be the amounts that are taxable. The CIRD Manual gives guidance on the tre