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HMRC internal manual

Corporate Intangibles Research and Development Manual

Intangible assets: related party rules: circumstances where relevant

Provisions affected

There are six circumstances where it is important to consider whether the other party to a transaction involving goodwill or intangible assets is a related party of the company in question.

1. Whether an intangible asset comes within CTA09/PART8

The policy behind the scope of the provisions is that assets in existence prior to 1 April 2002 normally remain outside the rules in Part 8 so long as they remain within the same economic family.

It is therefore extremely important to determine whether the person (a natural person or a legal entity) who subsequently transfers a pre-FA02 asset to a company is a related party of that company. The guidance on this is at CIRD11500 onwards.

Where a company transfers an asset (which is within Part 8 in its hands) to a related party or acquires such an asset from a related party, Part 8 provides (subject to exceptions) that the transaction should take place at market value. Market value is adopted not only in applying the rules of Part 8 but for tax purposes generally.

This rule broadly corresponds to the use of market value for transactions between ‘connected persons’ in the CG code.

The guidance is at CIRD45030 onwards.

Reinvestment relief under Chapter 7 of Part 8 is not available where there is a part realisation of an asset within Part 8 and the counter-party is a related party. This rule, and the thinking behind it, is described in CIRD20080.

Where royalties payable to a related party (who is outside Part 8 in respect of the transaction) are not in fact paid until more than 12 months after the period in which they are charged against profits in the accounts, the deductible debit is deferred to the period of payment. See CIRD12660.

5. Incorporation of a business

New rules were introduced in FA15 where an individual or a firm incorporates their business on or after 3 December 2014.  These rules restrict when and how relief for goodwill and certain customer related intangible assets is given. See CIRD44001 onwards.

New rules are to be introduced by clause 21 of Finance (No.2) Bill 2017 to ensure a tax advantage cannot be obtained by related parties who grant a licence other than at market value.  See the draft guidance from CIRD48350 onwards.