Tax treatment of intangible assets from July 1, 2020
Who is likely to be affected
Companies that acquire intangible assets (including intellectual property such as trademarks, patents, design rights, etc.) from related parties.
General description of the measure
This measure removes a restriction that existed in relation to pre-FA 2002 intangibles that prevented some companies from seeking relief for older, well-established intellectual property rights. This means that corporate tax relief will be available for the cost of acquiring such assets in circumstances where this was not previously the case and that intangible corporate assets will now be relieved and taxed under a single regime for acquisitions from July 1, 2020.
The measure amends the Business Intangible Assets Regime (the IFA Regime) to allow companies to claim relief from corporation tax for pre-AF 2002 intangible assets acquired from related parties on or after July 1, 2020.
A pre-FA2002 intangible asset is an intangible asset that was created before April 1, 2002. The IFA regime only applies to businesses.
The measure supports UK investment in intangibles by allowing pre-FA 2002 business intangibles acquired on or after July 1, 2020 to be exempt and taxed under a single regime.
Context of the measure
The government announced a consultation to review the CDI regime in the fall 2017 budget. The consultation was conducted between February and May 2018.
In Budget 2018, the government announced changes which included; targeted goodwill relief and closer approximation of unbundling rules for groups of companies.
The government announced further changes to the IFA regime in Budget 2020. These changes will allow pre-FA 2002 intangible assets acquired on or after July 1, 2020 to be brought into the IFA regime for businesses.
The changes will apply to intangible assets acquired on or after July 1, 2020.
Transitional rules will be introduced to protect companies holding intangibles subject to corporation tax immediately before July 1, 2020, including companies with cumulative gains or losses on intangibles treated under the rules on capital gains. These transitional rules are extended and may apply to intangible assets held by any company subject to corporation tax as taxable intangible assets held at any time between March 11, 2020 and June 30, 2020.
The corporation tax rules which deal with intangible assets are contained in Part 8 of the Corporation Tax Act 2009 (CTA 2009). The rules in Part 8 CTA 2009 apply only to intangible assets created on or after April 1, 2002 or to intangible assets acquired from an unrelated party on or after April 1, 2002. Intangible assets that do not meet this condition are called -FA 2002 assets’.
Pre-FA 2002 assets are normally dealt with under the corporate capital gains rules of the Taxation of Taxable Gains Act 2002 (“TCGA 1992”) or under Part 9 of the CTA 2009.
Legislation will be introduced in the Finance Bill 2020 to amend Part 8 CTA 2009 to allow companies which acquire pre-FA 2002 intangibles from related parties on or after July 1, 2020 to be brought into Part 8 CTA 2009 8 CTA 2009.
The general rule in Chapter 16 of Part 8 CTA 2009 that prevents pre-FA 2002 assets acquired from related parties from falling under Part 8 CTA 2009 will be amended. For intangible assets that are not subject to corporation tax prior to acquisition, it will not be necessary to determine when the intangible asset was created or whether an intangible asset acquired from a related party was an asset. prior to FA 2002 in the hands of the related party.
The tax treatment of pre-FA 2002 assets already subject to corporation tax before July 1, 2020 will be retained.
Transitional rules will also be introduced to address related party avoidance where a pre-FA 2002 asset is acquired from a related party on or after July 1, 2020 (including a license relating to a pre-FA 2002). The transitional related party rules will be extended to include acquisitions by a related party of assets from a non-corporate person in connection with assets created before April 1, 2002. These transitional rules will limit the amount of debit relief under Chapters 3 and 15 of Part 8 CTA 2009 by deducting the market value of the asset at the date of acquisition from all costs incurred on acquisition. Acquisition costs not relieved under Chapters 3 and 15 will instead be relieved upon any subsequent realization under Chapter 4 of Part 8 LTC 2009.
Summary of impacts
Impact on Treasury (£m)
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These figures are presented in Table 2.1 of the 2020 budget and have been certified by the Office for Budget Responsibility. More details can be found in the policy costing paper released alongside the 2020 budget.
This measure is not expected to have significant macroeconomic implications. Behavioral adjustments have been made to account for an increase in foreign investment and companies postponing transactions or using other methods to obtain the relief.
Impact on individuals, households and families
There is no impact on individuals since this measure only affects businesses. The measure should not affect the formation, stability or breakdown of the family.
It is not anticipated that there will be any impacts on groups sharing protected features.
Impact on businesses, including civil society organizations
This measure is expected to have a positive impact on companies that benefit from relief when acquiring non-restricted intangible assets before FA 2002.
The measure is likely to benefit companies with older but well-established (pre-FA 2002) intellectual property rights such as trademarks, patents, design rights, etc. The benefits could potentially apply to businesses across all industries.
This measure is expected to have a negligible impact on approximately 30,000 businesses that own or deal with pre-FA 2002 intangible assets.
One-time costs for these businesses will include familiarization with the change. Ongoing costs are expected to have a negligible impact on approximately 1,000 businesses that acquire pre-FA 2002 intangible assets from related parties each year. Companies acquiring assets would already bear the cost of market valuations and related tax calculations. The additional ongoing cost of this measure could include additional time required for computer calculations that would differ from what was done before.
The customer experience should remain broadly the same in the short term, as it will take time for assets to comply with the new rules. When assets entered the new rules, the customer experience could see an improvement given the simplifications that are part of this measure.
This measure should have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be IT changes to implement this change for HMRC and the costs are estimated to be around £0.38 million.
Other impacts were taken into account and none were identified.
Monitoring and evaluation
The measure will be reviewed by contacting the taxpayer groups concerned.
If you have any questions about this change, contact John Williams by phone: 03000 530 434 or email: [email protected]