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CID44075 - Intangible assets: Restrictions for goodwill and relevant assets: Pre-FA 2019 relevant assets

CTA09/S879C

 

CTA09/S879C disallows debit relief under CTA09/PART8/CHAPTER3 and CHAPTER15 in relation to pre-FA 2019 assets.  For details of this restriction see CIRD44070.

Pre-FA 2019 assets will fall into one or more of four cases. These cases are set out in CTA09/S879D-H.  Broadly the four cases cover:

  • Pre-FA 2019 relevant assets of the company.
  • Pre-FA 2019 relevant assets acquired from a related party (subject to certain exceptions).
  • Relevant assets acquired from a related party whose value is derived from a pre-FA 2019 asset.
  • Relevant assets acquired from a related party in connection with the disposal of a pre-FA 2019 asset.

 

The first case – CTA09/S879D

 

The first case simply ensures that any relevant asset held by the company before 1 April 2019 that fell within CTA09/S816A (because it was acquired or created between 8 July 2015 and 31 March 2019) will continue to be subject to similar restrictions by being treated as a pre-FA 2019 asset. 

But CTA09/S879D(b) imposes a further condition. The relevant asset must have been a chargeable intangible asset in relation to the company between 29 October 2018 and 31 March 2019.  If for example the company sold a relevant asset before 29 October 2018, and re-acquired it on or after 1 April 2019, or the asset was not a chargeable intangible asset during this period, the condition would not be met and CTA09/S879D would not apply to it.

CTA09/S741(1) defines ‘chargeable intangible asset’ in relation to a company as; “if any gain on its realisation by the company at that time would be a chargeable realisation gain”.  For example; an asset held by a non-resident company that is not chargeable to CT would not be a chargeable intangible asset.

 

The second case – CTA09/S879E

 

The second case extends the first case to ensure that relevant assets held by a company which are subsequently acquired by a related company continue to be restricted in the hands of that second company.  For example, a relevant asset held by company X which was acquired between 8 July 2015 and 31 March 2019 and which was a chargeable intangible asset in X’s hands would meet the first case set out above and be a pre-FA2019 asset of X. It would also meet conditions (a) and (b) of CTA09/S879E(1).  If that asset was then acquired by a related party company (“C”) on or after 1 April 2019 it would continue to be treated as a pre-FA 2019 asset in C’s hands.  This rule is however subject to two exceptions:

  • Case A is where the company C  acquired the asset from another company within the charge to CT at the time of the acquisition and the asset was not a pre-FA 2019 asset in the other company’s hands immediately before the acquisition.  This deals with the situation where debits in relation to the asset were not restricted immediately before the acquisition so there is no restriction to preserve.
  • Case B is intended to cover situations where there is a third party acquisition via a related intermediary. It is modelled on the intermediary rule in CTA09/S882(4).   For further guidance on this rule see CIRD11640.

 

CTA09/S879E(4) – (7) replicate the extension of the related party definitions that are applied in the general rule at CTA09/882 (see subsections (5A) – (5D)) and the market value rule at CTA09/S845(see subsections (4A) – (4F)). This ensures that a partnership related to a company is treated as a related party for the purpose of CTA09/S879E.  These related party definition extensions apply also to the third and fourth cases described below.

 

The third case – CTA09/S879F - G

 

The third case is modelled on the avoidance rule in CTA09/S893 – S894 (see CIRD48280).  It deals with situations where a relevant asset, such as a licence:

  • Is created on or after 29 October 2018,
  • Is acquired from a related party on or after 1 April 2019,
  • The value of which is derived wholly or partly from another asset,
  • And the other asset meets the preserved status condition.  

CTA09/S879G(2) and (3) are two tests that determine whether the other asset meets the preserved status condition.  If the other asset is a pre-FA 2019 asset in the hands of a company related to either the company acquiring the relevant asset, or the company transferring the relevant asset, the broad effect is to treat the acquired asset (e.g. a licence) as a pre-FA 2019 asset if the other conditions in CTA09/S879F(1)(a) – (c) are met.

 

The fourth case – CTA09/S879H

 

The fourth case is modeled on the avoidance rule in CTA09/S895 (see CIRD48280).  It deals with situations where a company acquires, directly or indirectly, a relevant asset on or after 1 April 2019 from a related person in connection with the disposal of a pre-FA 2019 asset. In effect, where the disposed asset would have remained a pre-FA 2019 asset if had been transferred to the company at the time of the disposal, then the acquired asset will also be treated as a pre-FA2019 asset.