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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Core computational rules: deductible debits: relief for capitalised expenditure on an intangible asset: accounts-based relief: market value acquisition of asset not on balance sheet


Situations affected

This paragraph deals with the case where the following apply:

  • a company is regarded as acquiring an intangible asset at market value for the purposes of Part 8
  • the value of that asset in its accounts immediately after its acquisition is nil

A company is regarded under Part 8 as acquiring an intangible asset at market value where either 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 is deemed to realise and re-acquire an asset under the degrouping rules in (see CIRD40510)

The initial value of goodwill in the accounts of the company acquiring it will very often be nil where a business, whose goodwill has been internally generated by the transferor, is acquired at its book value. This is on the basis that GAAP accounting for goodwill and intangible assets will not have permitted the transferor to recognise the value of the goodwill as an asset on the balance sheet. In addition, either of the following must apply:

  • GAAP accounting for acquisitions (see CIRD12735) has not been applied by the transferee
  • GAAP accounting for acquisitions has been applied but the book value of the business (its cost to the transferee) does not exceed the aggregate fair value of the individual assets and liabilities of the business


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. 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 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.