CIRD12780 - Core computational rules: deductible debits: relief for capitalised expenditure on an intangible asset: accounts-based relief: acquisition of asset not on balance sheet

CTA09/PART8/S857

Situations affected

This paragraph deals with the case where the following apply:

  • a company is regarded as acquiring an intangible asset at market value or arm's length value for the purposes of Part 8
  • the accounting value of that asset immediately after its acquisition is nil, negligible, or it has not been recognised in the accounts at all.

A company is regarded under Part 8 as acquiring an intangible asset at market value where any of the following apply:

  • the company acquires the asset from a ‘related party’ (see CIRD45105 onwards) and the exceptions to the market value rule do not apply (see CIRD45030)
  • the company acquires the asset and CTA09/S846(1B) applies (only for periods before 1 January 2026)
  • the company is deemed to realise and re-acquire an asset under the degrouping rules in (see CIRD40510)

For periods on or after 1 January 2026 a company is regarded as acquiring an intangible asset by reference to the arm’s length provision where:

  • an adjustment is made under TIOPA10/S147151(3) or (5) , and/or under TIOPA10/S151(3)
  • an adjustment is made under CTA09/S846(2)


Background

As an example, where a company acquires a business whose goodwill has been internally generated by the transferor, the initial value of goodwill in the accounts of the transferee company can be nil, or not recognised at all, where the company has adopted the merger method (merger accounting) rather than the acquisition method of accounting.


Provision

In these circumstances, tax relief for the deemed cost of the asset cannot be derived from any figures that actually appear in the accounts of the acquiring company, or the value has not been recognised at all. Instead, therefore, the computational rules are applied as if the accounting entries, on which the figures in the tax computation are based, are those that would have been made (in accordance with GAAP) if the asset had been transferred at market or arm’s length value.

If therefore the asset in question has a market value of £100 on acquisition and an expected useful life of ten years, the deductible debits for the amortisation of that asset would be £10 per year over that period. That is so long as no tax adjustments are necessary to the deemed acquisition cost - see CIRD12720.

As explained in CIRD30090, a range of possible estimates of the useful life of an asset may all fall within the ambit of GAAP.