Government amendments have been tabled on the tax treatment of intangible assets.
Discussion of the Finance Bill at the Public Bill Committee ended on 11 December 2018, and the Government then tabled further amendments with associated explanatory notes before Christmas. The main amendments, which are the focus of this article, relate to the tax treatment of intangible fixed assets, specifically de-grouping relief and deductions for goodwill and similar intangibles. An amendment relating to the entrepreneur’s relief definition of personal company was also tabled. The Finance Bill report stage will now take place on 8 January 2019.
The Government’s plans for changes to the corporate taxation of intangibles were discussed in Tax Matters Digest on 9 November 2018. Details of the latest amendments were then published by HM Treasury on 21 December 2018.
The first set of amendments were technical changes relating to the new de-grouping rules. Where a company leaves a group of companies such that the capital gains substantial shareholding exemption (SSE) applies, from 7 November 2018 the departing company will no longer have a deemed disposal and reacquisition at market value of intangible assets that it had acquired on a tax neutral transfer in the past six years (the ‘no Degrouping Disposal’). The amendments will extend this no Degrouping Disposal to transactions, from 21 December 2018, where SSE would have applied but for paragraph 6 Schedule 7AC TCGA 1992 (which in particular gives section 139 TCGA priority over the SSE). These technical changes were an early Christmas present for groups carrying out demergers of trading businesses without giving rise to immediate intangible degrouping gains.
Relief for goodwill and similar intangibles
The second set of amendments introduce a new Chapter 15A Part 8 CTA 2009 which provides for a new fixed rate amortisation relief (6.5 percent) for goodwill and similar intangible assets (Relevant Assets) acquired after 1 April 2019 provided that they are acquired as part of a business with other qualifying intangible assets (Qualifying IP Assets). This is a complicated set of provisions as they aim to retain the existing restrictions that have applied since 8 July 2015 for all acquisitions of Relevant Assets (section 816A).
The new default position is that Relevant Assets attract relief. However the new Chapter 15A includes the following rules that fully restrict that relief in particular circumstances:
The new Chapter 15A also contains rules that apply when none of the full restrictions apply. These rules partially restrict amortisation relief in respect of Relevant Assets that were acquired on or after 1 April 2019:
It is good news that the definition of Relevant Assets is wider than just goodwill as it is based on the previous section 816A definition. This will help companies with valuable unregistered brands, customer lists and other customer information. However, Qualifying IP Assets are narrowly defined to include patents, registered design, copyright or design rights, plant breeders’ right or rights under section 7 of the Plant Varieties Act 1997, corresponding non UK rights and licencing or other rights in respect of the foregoing. In particular registered trademarks are not included, nor are other associated rights that would have qualified under the patent box regime. In addition, Qualifying IP Assets must also be post 2002 assets within the intangible asset code.
The aim of the new Chapter 15A is to make the UK internationally competitive for groups of companies to hold and manage intangible assets. In particular, the Government is keen to attract high tech and pharmaceutical companies which are considering moving their intangible assets as a result of international tax changes. The exclusion of registered trademarks from Qualifying IP Assets, which frank the ability to claim amortisation relief on Relevant Assets, and the high ratio (six times) of Relevant Assets to Qualifying IP Assets have been set by the Government with this objective in mind whilst keeping the cost of this measure to an affordable limit.
Whilst the new Chapter 15A is to be welcomed, it is complex and introduces more hard dates, 29 October 2018 and 1 April 2019, as well as the existing hard dates, 8 July 2015 and 1 April 2002, which need to be considered in relation to when the intangible assets were created or acquired to determine the correct corporation tax treatment.
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