Relief At Last – Changes to Goodwill and Degrouping Charges for Intangible Fixed Assets
Changes introduced by the Finance Act 2019 (FA-2019) address inconsistencies between the tax treatment of tangible fixed assets (e.g. cars, vans, machinery, buildings) and intangible fixed assets (e.g. goodwill, intellectual property). The new provisions bring the intangible fixed assets rules more in line with those applying to tangible fixed assets.
A degrouping charge may apply where a company (Co A) acquires assets from another group company (Co B) on a no gain/no loss basis, and Co A leaves the group within 6 years of acquiring the asset.
The effect of a degrouping change is that Co A is deemed to have disposed of and reacquired the asset at market value immediately after the asset was acquired, thereby creating a chargeable gain and an associated corporation tax charge in Co A.
However, there is an exemption from the above charge for tangible fixed assets (TFAs) where Co A ceases to be a member of a group as a consequence of a disposal of shares in Co A, or another group member, by a member of the group.
Prior to 7 November 2018, there was not a similar mechanism for degrouping charges for transfers of intangible fixed assets (IFAs). However, the introduction of a new provision at CTA 2009, s. 782A disapplies the degrouping charge where the disposal of shares in Co A meets the Substantial Shareholding Exemption in Schedule 7AC to TCGA 1992.
The new provision for IFAs does not directly reflect the regime for TFAs, however the two tax treatments are now more consistent with one another.
Amortisation of Goodwill
IFAs, such as goodwill, can form a significant part of the value of a business, over and above the TFAs of the business. The rules have changed several times over recent years, however prior to FA 2019 amortisation was not allowable on transactions of ‘relevant assets’ post 7 July 2015.
Subject to restrictions, the new provisions allow ‘relevant assets’ (goodwill, customer information, customer relationships, unregistered trademarks or licenses) to benefit from amortisation relief for corporation tax at an annual rate of 6.5%.
There are restrictions on amortisation relief where:
- The asset is a pre FA-2019 relevant asset;
- The asset is acquired from a related party i.e. amortisation of goodwill on incorporation of a business; or
- The asset is acquired as a part of a business that does not include any ‘qualifying IP assets’ (includes patents, registered designs, copyrights, design rights, and plant breeders rights).
The new rules are complex, and each case will need to be reviewed on its own merit to confirm whether the relief will be available.
Reorganisations of Share Capital (28 February 2019)
An Introduction to UK Limited Companies (1 November 2018)
Company Demerger and Buy-Out (Case Study – 11 May 2018)
Statutory Demerger & Splitting a Company (Case Study – 29 November 2017)