David O’Keeffe has two cheers for changes to the intangible fixed assets (IFA) regime proposed in the Budget but wants to see the draft law before giving a final hurrah.
In early 2018 the government consulted on possible changes to the IFA regime (CTA 2009, Part 8). The consultation document suggested changes in a number of areas, but the Budget announcement only covers two of those areas.
The IFA regime was amended in 2015 to deny relief to ‘relevant assets’, including goodwill and related assets. One of the intentions behind that change was to remove a perceived incentive to structure acquisitions as a trade and asset (including goodwill) deal, rather than a sale of shares. The trade and assets deal would then lead to a tax deduction for the cost of the goodwill in the acquisition.
There will be a partial reinstatement of relief for acquired goodwill in the acquisition of a business, although the details of how this will work are still unclear. The draft Finance Bill and tax impact note (TIIN) is due to be published today (7 November) and should provide us with more information on just how ‘partial’ this reinstatement will be together with a commencement date.
On the whole, this is good news for UK business investment.
Intra-group transfers have always been tax neutral under the IFA regime with the tax history of the asset transferred with it to the new owner in the group. To address the risk of avoidance there are detailed de-grouping provisions that impose an exit charge on the receiving company if it leaves the group within six years, whilst still holding the transferred assets, including intangible assets.
This is fine in principle, but the capital gains treatment applicable to real assets (as opposed to intangibles) has diverged as a result of the rules for the substantial shareholding exemption (SSE). In the case of real assets, the de-grouping charge can usually be exempted under SSE.
The Budget proposes making the de-grouping charge also exempt in the IFA regime, where it arises as a result of a transaction covered by SSE.
These changes will apply to de-groupings occurring on or after 7 November 2018.
Whilst these two proposed changes are very welcome, it is particularly disappointing that there is currently no suggestion that anything will be done to bring the pre-2002 intangible assets into the IFA regime.