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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Intangible assets: related party rules: partnership incorporation of a pre-FA 2002 business: outline

CTIS receive a number of requests for technical advice in relation to the application of the related party rules at CTA09/PART8/S835 on the incorporation of a pre-FA 2002 partnership business.

New rules were introduced by FA15 from 3 December 2014 that restrict when and how relief is given for goodwill recognised on incorporation of a business (see CIRD44001 onwards).  This guidance is therefore only likely to be relevant to incorporations that occurred before that date.

The term “related party” is defined by S835 (see CIRD45105). S835 (5) is relevant to partnership incorporations and you will need to consider the definition of “close company”, “participator” & “associate of a participator” (see CIRD45250).

When a partnership transfers the partnership business to a close company, at a time when one of the partners is also a participator or associate of a participator in that company, the transfer is likely to be between related parties.

A common misconception is that the goodwill can somehow be apportioned between the partners so that only part of the goodwill is treated as a “pre-FA 2002 asset” (see CIRD10140). For example, claims are made in relation to an outgoing partner’s share of goodwill on the basis that the outgoing partner is not a “related party” at the time of acquisition.

For practical advice in relation to such arguments see CIRD45265. CIRD45270 provides advice in relation to information and document requests.