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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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Intangible assets: company reorganisations: transfer of business without consideration: conditions

FA02/SCH29/PARA84

The conditions referred to in CIRD42020 are as follows:

  1. The transfer should take place under a scheme of reconstruction (as defined in TCGA92/SCH5AA - see CG52707).
  2. The scheme of reconstruction is entered into for bona fide commercial reasons, and does not form part of a scheme or arrangements where the main (or one of the main) purposes is avoidance of liability to CT, CG tax or income tax.
  3. There should be no consideration received by the transferor, other than an assumption of all or part of the debts of the business by the transferee.
  4. The transfer should not be an intra-group transfer within CIRD40250.
  5. The intangible assets transferred must be ‘chargeable intangible assets’ (CIRD20035) immediately before and after the transfer in the hands of the respective companies. So, for example a transfer of assets to a company outside the CT regime would not benefit from tax neutral transfer terms.
  6. Neither the transferor nor the transferee is a friendly society (ICTA88/S461A) or a dual resident investing company (see CTM34560). This is because these types of company are subject to different CT treatment than that applicable to ordinary companies.

Points to note

  1. The transfer of a business may well involve the transfer of chargeable intangible assets that are not in the balance sheet, in particular goodwill that has been internally generated (rather than purchased) by the transferor company.
  2. Where the conditions are satisfied tax neutral treatment is mandatory; the treatment is not one that is the subject of a claim.
  3. Where the conditions are not satisfied the realisation proceeds to be recognised for the transfer of the intangible asset will be determined in the normal way. That is either the actual consideration (see CIRD13210 onwards) or as determined under the rules described in CIRD45030 onwards (market value etc).
  4. There is a provision for companies to seek advance clearance that the second condition above (the commercial purpose test) is satisfied. The Anti-Avoidance Group (Intelligence), Clearance and Counteraction Team deals with all clearance applications and the procedure is described in CIRD42100.
  5. Where a company submits tax computations on the basis that tax neutral treatment under paragraph 84 is available and there is no record of a clearance application, inspectors should send a report and the file to Anti-Avoidance Group (Intelligence), Clearance and Counteraction Team.
  6. The CG restriction, which is equivalent to condition 6 above, extends also to investment companies and venture capital trusts, because they enjoy special CG tax treatments, but as there are no such special treatments for these companies under Schedule 29 there is no similar exception for them here.