Corporation Tax treatment of intangible fixed assets from 1 July 2020
Published 11 March 2020
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This publication is available at https://www.gov.uk/government/publications/corporation-tax-treatment-of-intangible-fixed-assets-from-1-july-2020/corporation-tax-treatment-of-intangible-fixed-assets-from-1-july-2020
Who is likely to be affected
Companies that acquire intangible fixed 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 exists in relation to pre-FA 2002 intangible assets that prevents some companies from claiming relief for older, well-established intellectual property rights. This means that corporation tax relief will be available for the cost of acquiring these assets in circumstances where it wasn’t previously and that corporate intangible assets will now be relieved and taxed under a single regime for acquisitions from 1 July 2020.
The measure amends the corporate intangible fixed assets regime (the IFA regime) to allow companies to claim corporation tax relief for pre-FA 2002 intangible fixed assets acquired from related parties from 1 July 2020.
A pre-FA2002 intangible fixed asset is an intangible asset that was created before 1 April 2002. The IFA regime only applies to companies.
Policy objective
The measure supports UK investment in intangible assets by allowing a company’s pre-FA 2002 intangible assets acquired from 1 July 2020 to be relieved and taxed under a single regime.
Background to the measure
The government announced a consultation to review the IFA regime at Autumn Budget 2017. The consultation was carried out between February and May 2018.
At Budget 2018 the government announced changes that included; a targeted relief for goodwill and closer alignment of the de-grouping rules for corporate groups.
The government announced further changes to the IFA regime in Budget 2020. These changes will allow pre-FA 2002 intangible fixed assets acquired on or after 1 July 2020 to be brought within the IFA regime for companies.
Detailed proposal
Operative date
The changes will have effect in relation to intangible assets acquired from 1 July 2020.
Transitional rules will be introduced to protect companies holding intangible assets that are within the charge to corporation tax immediately before 1 July 2020 including those companies with accrued gains or losses on intangible assets dealt with under the capital gains rules. These transitional rules are extended and may apply to intangible assets held by any company within the charge corporation tax in relation to chargeable intangible assets held at any time between 11 March 2020 to 30 June 2020.
Current law
The corporation tax rules that deal with intangible assets are contained in Part 8 Corporation Tax Act 2009 (CTA 2009). The Part 8 CTA 2009 rules only apply to intangible assets that are created on or after 1 April 2002 or to intangible assets acquired from an unrelated party on or after 1 April 2002. Intangible assets that do not meet this condition are referred to as ‘pre-FA 2002 assets’.
Pre-FA 2002 assets are normally dealt with under the corporate capital gains rules within the Taxation of Chargeable Gains Act 2002 (‘TCGA 1992’) or under Part 9 of CTA 2009.
Proposed revisions
Legislation will be introduced in Finance Bill 2020 to amend Part 8 CTA 2009 to allow companies who acquire pre-FA 2002 intangible assets from related parties from 1 July 2020 to be brought within Part 8 CTA 2009.
The general rule in Chapter 16 of Part 8 CTA 2009 that prevents pre-FA 2002 assets acquired from related parties coming within Part 8 CTA 2009 will be amended. For intangible assets not within the charge to corporation tax prior to acquisition there will be no need to consider when the intangible asset was created or whether an intangible asset acquired from a related party was a pre-FA 2002 asset in the related party’s hands.
The tax treatment for pre-FA 2002 assets already within the charge to corporation tax prior to 1 July 2020 will be preserved.
Transitional rules will also be introduced to counter avoidance between related parties where a pre-FA 2002 asset is acquired from a related party on or after 1 July 2020 (including a licence in respect of a pre-FA 2002). The transitional related party rules will be extended to include related party acquisitions of assets from a person who is not a company in relation to assets created before 1 April 2002. These transitional rules will limit the amount of debit relief under Chapter 3 and 15 of Part 8 CTA 2009 by deducting the market value of the asset at the date of acquisition from any costs incurred on acquisition. The acquisition costs not relieved under Chapter 3 and 15 will instead be relieved on any subsequent realisation under Chapter 4 of Part 8 CTA 2009.
Summary of impacts
Exchequer impact (£m)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| -5 | -25 | -60 | -95 | -140 | -185 |
These figures are set out in table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. Behavioural adjustments have been made to account for an increase in inward investment and companies deferring transactions or using other methods to obtain the relief.
Impact on individuals, households and families
There is no impact on individuals because this measure only affects businesses. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated there will be any impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact on businesses who benefit from obtaining relief when acquiring unrestricted pre-FA 2002 intangible fixed assets.
The measure is likely to benefit businesses 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 sectors.
This measure is expected to have a negligible impact on an estimated 30,000 businesses that own or transact in pre-FA 2002 intangible fixed assets.
One-off costs for those businesses will include familiarisation with the change. On-going costs are expected to have a negligible impact on an estimated 1,000 businesses each year acquiring pre-FA 2002 intangible fixed assets from related parties. Companies acquiring assets would already incur the cost of undertaking the market valuations and related tax computations. The additional ongoing cost of this measure could include additional time required for computational calculations which would differ from what was previously done.
Customer experience is expected to stay broadly the same in the short-term as it will take time for assets to come within the new rules. When assets have come within the new rules customer experience could see an improvement given simplifications which are part of this measure.
This measure is not expected to have an 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 in the region of £0.38m.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact John Williams on telephone: 03000 530 434 or email: john.r.williams@hmrc.gov.uk.