Nursery goodwill is the part of a sale price that the physical assets do not explain. It is usually calculated by valuing the whole business on its maintainable earnings, meaning the profit a new owner can expect to keep making. The fair value of the tangible assets that transfer is then deducted. Our guide to how to value a nursery business sets out the full valuation process.
This page is for owners planning to sell within the next few years, and for buyers testing the goodwill in an asking price. It explains what goodwill is made of, how to estimate it, which parts survive a sale, and how deal structure and tax change the figure.
What goodwill means when a nursery is sold
In law, goodwill is the reputation and customer connection that keeps a business earning. In the accounts, it is the gap between the price paid for a business and the value of its identifiable assets.
HMRC’s Capital Gains Manual quotes the leading case, which calls goodwill the benefit of a business’s good name, reputation and connection: the attractive force that brings in custom.
HMRC’s Shares and Assets Valuation Manual explains why the two meanings differ. For Capital Gains Tax, goodwill follows legal principles. Under the corporate intangibles rules, it follows accounting principles and is the difference between a business’s overall worth when it changes hands and the value of its identifiable assets.
So the balance sheet figure is not a market value. Goodwill an owner builds is never recorded. Purchased goodwill is recorded and then written down. HMRC’s summary of the accounting standard FRS 102 says this happens over its useful life, or over no more than 10 years if that life cannot be reliably estimated.
Goodwill is one of the components of a nursery valuation, alongside fixed assets and, for freeholds, property.
The intangible assets inside nursery goodwill
Some intangibles can be identified and valued on their own. The rest is an unidentifiable remainder, such as parents’ habit of choosing this setting. Whether each part reaches the buyer intact depends mainly on the deal structure.
In a share sale, the buyer acquires the company that runs the nursery, so its contracts and history stay put. In an asset sale, the buyer acquires the business and its assets, and each must be moved across. Staff transfer under TUPE, the Transfer of Undertakings (Protection of Employment) Regulations 2006, on their existing terms.
| Intangible asset | What it means for a nursery | Share sale | Asset sale |
|---|---|---|---|
| Ofsted registration and inspection record | Permission to operate; published inspection history | Stays with the company; new directors reported to Ofsted | Buyer must register first; history stays public for five years |
| Trading name, website and domain | How parents find the setting | Stays with the company | Assigned in the sale contract |
| Parent contracts, registrations and waiting list | Booked income and future demand | Continue with the company | Parents contract with the buyer; check the agreement |
| Funded entitlement arrangements with the local authority | Claims for funded hours | Continue; check the agreement | Buyer needs its own arrangement; check the agreement |
| Staff team | Ratios and parent relationships | Employer unchanged | Transfer under TUPE |
| Policies, curriculum and management systems | How the setting runs day to day | Stay in place | Handed over with the business |
| Supplier and software contracts | Consumables, booking and billing | Continue; check change of control clauses | Assigned or replaced; check the agreement |
| Seller’s restrictive covenant | Promise not to compete for a period | Given by the selling shareholders | Given by the seller |
Our guide to TUPE when selling a nursery explains the staff transfer. A covenant stops the seller taking parents elsewhere. HMRC’s guidance on restrictive covenants treats a payment for one, given on the sale of a going concern, as part of the price for goodwill.
Furniture, equipment and resources are tangible assets and are valued separately, as our page on fixed assets in a nursery valuation explains.
Business goodwill and personal goodwill
Business goodwill stays with the nursery when it changes hands. Personal goodwill belongs to the owner and leaves with them, so a buyer will not pay for it.
The Shares and Assets Valuation Manual draws the line. If a business could not continue without its proprietor, the goodwill is likely to be personal. Where others are employed, there is likely to be business goodwill, but profits from the proprietor’s own reputation, skill or ability must be excluded.
The signs are familiar. The owner is also the manager. Parents ask for the owner by name. The local authority knows only one contact. Each of these ties part of the profit to one person.
A buyer must pay a market-rate manager to replace that person. So the owner’s own work is costed at a market rate and taken out of profit before goodwill is valued.
Personal goodwill shrinks when a capable manager is in post, systems are written down, and parent relationships sit with the team. Our guide on how to increase your nursery’s value before selling covers how to get there.
How to calculate nursery goodwill
Value the whole business on its maintainable earnings, then deduct the fair value of the tangible assets that transfer. Other methods then test the answer.
The residual method
The residual method treats goodwill as what is left of the business value after deducting the tangible assets at fair value. Fair value means their worth to an incoming operator, not their book value. Because the method starts from the value of the whole business, it reconciles to the price paid. It also matches HMRC’s Stamp Duty Land Tax Manual, where goodwill and other intangibles are usually going concern value less the value of the property, fixtures, fittings and chattels.
The earnings multiple method
The business value usually comes from an earnings multiple. EBIT is earnings before interest and tax. EBITDA is earnings before interest, tax, depreciation and amortisation. Maintainable earnings are either figure after adjusting for the owner’s pay and one-off costs. Our guides to EBIT in nursery valuation and EBITDA in nursery valuations cover these adjustments.
In the sales we handle, leasehold nurseries typically sell at 1.25 to 2.5x EBIT and freehold nurseries at 4.5 to 6.25x EBIT including the property. These are indicative ranges, not official data. EBITDA multiples, such as those in our guide to realistic EBITDA multiples for UK day nurseries, are not interchangeable with EBIT multiples. Always check the basis and what the price includes. For weighting several years of profit, see our full nursery valuation guide.
The super profits method
Super profits are the profit left after paying a fair return on the tangible assets and a market wage for management. Goodwill equals that surplus multiplied by a number of years’ purchase, which is how many years of surplus a buyer will pay for up front. HMRC’s valuation manual lists it as one valuation approach.
Take an illustrative 30-place nursery with maintainable EBIT of £9,000 after paying a market-rate manager, and tangible assets of £15,000. A 10% return on those assets is £1,500, leaving super profit of £7,500. At 1.8 years’ purchase, goodwill is £13,500.
When most of the profit is really the owner’s wage, little surplus remains and goodwill is small.
Price per place and turnover as sense checks
Price per place and turnover multiples ignore profit, so they are cross-checks only. In the leasehold example below, a business value of £166,000 across 60 registered places works out at about £2,767 a place. Treat such figures as a check, not a price.
Worked example: goodwill in a leasehold nursery
The figures below are illustrative, for a 60-place leasehold nursery where the owner also works as manager.
| Step | Figure |
|---|---|
| Reported EBIT, 60-place leasehold nursery | £95,000 |
| Owner works as manager and draws | £20,000 |
| Market-rate manager including employer costs (an assumption: replace with a local figure) | £38,000 |
| Deduct the difference | Less £18,000 |
| Add back a one-off legal cost | Add £6,000 |
| Maintainable EBIT | £83,000 |
| Multiple, within our indicative leasehold range | 2.0x |
| Business value | £166,000 |
| Fixtures, fittings and equipment at fair value | Less £22,000 |
| Goodwill | £144,000, about 87% of the price |
| Price per place check | About £2,767 |
In leasehold sales goodwill is most of the price, because there is no freehold in it. That is why lenders are cautious: in our experience, banks rarely lend more than 50% on leasehold acquisitions. Buyers therefore test the maintainable earnings closely. Our guide to financing a nursery purchase covers the options.
A super profits cross-check agrees. A 10% return on the £22,000 of fixtures, fittings and equipment is £2,200, leaving super profit of £80,800. At 1.8 years’ purchase, goodwill is about £145,400, close to the residual figure. The rate and years’ purchase are illustrative.
Worked example: goodwill in a freehold nursery
These figures are also illustrative. A freehold nursery has maintainable EBIT of £120,000. At 5.0x, within our indicative freehold range, the price is £600,000.
A chartered surveyor values the property as an operating nursery at £420,000 and the fixtures, fittings and equipment at £30,000. That leaves goodwill of £150,000, or 25% of the price. If the property were valued without regard to the nursery trade, at £350,000, goodwill would appear to be £220,000.
So the property valuation basis changes the goodwill figure. That matters because Stamp Duty Land Tax is due on the land and buildings only, and because the split changes the seller’s gain on each asset. The HMRC and Valuation Office Agency practice note, published on 30 September 2013, says the split must be just and reasonable. Its examples are pubs, hotels, care homes and similar trade related property. For those, it expects the property to be valued as an operating entity, and warns that deducting a value for an empty, stripped building would inflate goodwill. Agree the split in the sale contract with your advisers.
What makes nursery goodwill rise or fall
Goodwill rises with anything that makes maintainable profit larger or more certain, and falls with anything that adds risk for a buyer. The official figures below cover England.
The Department for Education’s provider survey, published on 11 December 2025, found 16% of full-day places at group-based providers were spare. A fuller setting shows proven demand; an emptier one is selling potential. See our page on healthy nursery occupancy rates.
The fee and funding mix changes margin. The same survey found average parent fees were about £3 to £3.50 an hour below average funding rates for under 2s. For 3 and 4 year olds, fees were 40p to £2.07 an hour above funding rates, depending on region. Local funding rates for 2026 to 2027, announced on 15 December 2025, vary by age and area.
Staff stability protects goodwill because parents attach to people. The survey put turnover at 14% in group-based providers against 7% in school-based ones, and found 79% of group-based staff held a relevant qualification at Level 3 or above.
Since 10 November 2025, Ofsted has graded early years settings on report cards using five grades: exceptional, strong standard, expected standard, needs attention and urgent improvement. Ofsted’s statistics published on 9 July 2026 note that a needs attention grade usually brings reinspection within 12 months. See buying a nursery with a low Ofsted rating.
Buyer competition helps. The survey found 31% of group-based providers were part of a chain, rising to 43% of private ones. HMRC’s valuation manual, however, says open market value should not assume a synergy premium unless synergy is commonplace.
Policy risk is harder to price. In July 2026 the Competition and Markets Authority opened a market study covering affordability, funding, information for families and ownership models, with provisional findings expected by early 2027. For the wider picture, see factors affecting childcare nursery business value.
Share sale or asset sale: what happens to goodwill
In a share sale, goodwill passes intact because the company that holds it does not change. In an asset sale, the buyer rebuilds parts of it, so some goodwill is at risk during the handover.
In a share sale, the company keeps its registration, inspection history, contracts and staff. Ofsted says no new registration is needed where a buyer acquires a company that keeps its company number and trading name. New directors must still be reported to Ofsted and complete its checks.
In an asset sale, the buyer is a new legal entity. Ofsted’s registration guidance for nurseries says it cannot run childcare on the premises until it is registered or the setting is added to its existing registration. Ofsted aims to complete early years applications within 12 weeks, but some take longer. If the seller resigns its registration first, the nursery must stop operating.
Staff move under TUPE, and contracts are assigned or replaced. At each step, parents, staff or funding can slip away. Our page on legal essentials for UK day nursery transfers covers the process.
How goodwill is taxed on a nursery sale
Tax falls on the seller’s gain, and who pays depends on how the nursery is owned and sold.
A sole trader or partner pays Capital Gains Tax on the gain on goodwill. Business Asset Disposal Relief reduces that tax on qualifying business disposals. HMRC’s helpsheet HS275 sets its rate at 14% for disposals on or after 6 April 2025 and 18% on or after 6 April 2026. A £1 million lifetime limit applies, and conditions must be met for two years before the sale.
In a share sale, the gain arises on the shares. Where a limited company sells the nursery’s assets, the gain arises in the company, and the relief is not available to companies.
Under HMRC’s corporate intangibles rules, a company buying goodwill on or after 1 April 2019 gets relief at a fixed 6.5% a year only with qualifying intellectual property. Relief is capped at six times that property’s cost. Many nursery purchases include little or none, so the buyer’s tax position can favour one structure.
HMRC’s Shares and Assets Valuation team checks goodwill values but will not value goodwill in advance. After a sale, you can request a Post Transaction Valuation Check on form CG34, and HMRC aims to agree a value within four weeks of having everything it needs. Its guidance asks for accounts for the three years before the valuation date. Take advice from your accountant before agreeing how the price is split.
Before your nursery’s goodwill is valued
A nursery goodwill valuation is only as strong as its evidence. Gather three years of accounts, current management accounts and a clear record of the owner’s pay and add-backs. Add occupancy and waiting list records, fee and funded hours income by age, staff records with qualifications, your latest Ofsted report card or report, key contracts and the lease. With these, a valuer can separate business goodwill from personal goodwill and defend the figure to a buyer.
If you would like a figure for your own setting, you can request a confidential nursery valuation from our team.
Frequently asked questions
What is goodwill in a nursery business?
Goodwill is the part of a nursery’s price that its physical assets do not explain. It reflects reputation, parent relationships, the staff team, the inspection record and the systems that keep the setting earning after a sale. In most leasehold sales, it is the largest part.
How do you calculate goodwill for a day nursery?
Adjust profit to a maintainable level, removing one-off costs and costing the owner’s role at a market rate. Apply a market multiple to value the whole business. Then deduct the fair value of the tangible assets that transfer, including any freehold property. The remainder is goodwill.
Why does my balance sheet show no goodwill?
Goodwill an owner builds is not recorded in the accounts. It appears only when a business is bought, and it is then written down over its useful life. The accounts figure therefore says little about what your goodwill is worth to a buyer today.
Does Ofsted registration transfer to a buyer?
Registration is held by the registered provider and cannot pass to a different legal entity. In a share sale the company stays registered, so the registration and inspection record continue. In an asset sale the buyer must hold its own registration before it can operate.
What is personal goodwill?
Personal goodwill is value tied to the owner rather than the business, such as parents choosing the nursery because of one person. HMRC’s valuation guidance says profits that depend on the owner’s personal skill or reputation are excluded when business goodwill is valued.
Can a loss-making nursery have goodwill?
Usually very little. In our experience, if a nursery cannot make a sustainable profit after paying a market-rate manager, a buyer has no earnings to pay a premium for. The price then tends to reflect the fixtures, the lease, registered capacity and location.
Does a freehold increase goodwill?
A freehold increases the total price, not necessarily the goodwill. When the property is valued as a working nursery, much of the value sits in the land and buildings. Goodwill is therefore often a smaller share of the price than in a leasehold sale.
How is goodwill taxed when I sell my nursery?
A sole trader or partner pays Capital Gains Tax on the gain and may qualify for Business Asset Disposal Relief at 18% for disposals from 6 April 2026. In a share sale, the gain is on the shares. Take advice before agreeing how the price is split.
Can a buyer claim tax relief on goodwill?
A company buying goodwill on or after 1 April 2019 gets relief at a fixed 6.5% a year only if it also buys qualifying intellectual property with the business. Relief is capped at six times that property’s cost. Many nursery purchases include little or none, so relief is often limited.
Author – John P. Gaskell
John is a senior member of the Blacks Brokers team with extensive experience leading successful national sales operations. He plays a central role in developing the team’s approach to client service, drawing on a deep belief that positivity, care and drive are the defining qualities of any great salesperson. John delivers comprehensive training across the organisation that instils a client-first ethos at every level, ensuring consistency of service throughout every transaction. His focus is always on achieving the best possible outcome for each client the business serves.