“The intangible represents the real power of the universe. It is the seed of the tangible.” Bruce Lee

HM Treasury have been pondering the tax treatment of the intangible and published a consultation document on the corporate Intangible Fixed Assets regime on 19 February.

The document notes the “growing importance of intellectual property to the productivity of modern businesses” and feels that “it is now the right time for a more comprehensive review of the regime”.

Value and impact of Goodwill

The most significant recent change in this area was in the Finance Act 2015, where the previously available deduction for the amortisation of acquired goodwill (where the trade and assets of a business are acquired for more than the fair value of the assets, then the balance is effectively goodwill) was denied from 8 July 2015. This has meant that purchasers of business have been more likely to buy shares (to help the tax position of vendors) as the upside of the goodwill deduction on a trade and assets deal was no longer available to them. The Government has asked for views on the impact this has had on businesses, and suggest in the document that there is a feeling that this deduction puts the UK regime at a competitive disadvantage to most other regimes. Whilst noting the relief was expensive, there appears to be some appetite for reintroducing it, which should be welcomed, as it is felt this would enable more transaction activity to take place.

New v old

At present, assets which existed at 1 April 2002 are not subject to the same regime as newer assets, and it is proposed that this distinction is abolished. This may result in tax relief being available for the amortisation of such assets where this was not previously the case.


Another point which the Government is seeking to address is what seems to be an unfair distinction between tangible and intangible assets in certain circumstances. Picture a structure with a holding company with a property used in the business, and a trading subsidiary. The property can be passed down to the subsidiary without a tax charge arising due to the group relationship (yay!). However, in the past if the subsidiary then left the group within six years, then what is called a degrouping charge arose, such that the initial transaction was in effect treated as having occurred at market value (boo!). If the Substantial Shareholding Exemption applies (which it does in our imaginary example), the degrouping charge is however effectively exempt due to that Exemption (yay again!).

Using the same facts as above, but replacing the property with an intangible asset (such as a patent or trademark), the Exemption does not cover the degrouping charge under the intangibles regime (boo!). The discussion paper seeks views on how to address this anomaly (the obvious suggestion being to change to the rules governing tangible assets).

Unwanted election

At present, tax relief for intangibles (where available) either follows the amortisation in the accounts or alternatively an election can be made for a fixed annual deduction of 4% of cost on a straight line basis. The consultation does not seem keen to increase this rate to match higher overseas rates, and indeed seems to question whether or not relief should be given at all for assets which are not decreasing in value. Views are sought on this.

Why consult?

The purpose of the consultation is to seek to make UK businesses more likely to invest in intangibles, to make the UK more attractive to mobile businesses and also a more attractive place for multinationals to own their IP, presumably all with a view to increasing tax revenues. However, there is an awareness that all these lovely extra tax reliefs come at a cost, and a question is raised as to whether the tax relief could in some way be aligned to a requirement for the IP to generate income. This sounds like it may involve an additional compliance burden, and it will be interesting to see how this develops.

The discussion paper is open for comments until 11 May 2018. Some of these changes could have significant impact on the structuring of transactions, and it is hoped that certainty is achieved as soon as possible thereafter, such that the tangible seeds of the changes can grow.

If you want to discuss any of the points raised in this blog please get in touch with me here, or:

0141 886 6644

The information in this blog should not be regarded as career or financial advice.  This is based on our understanding in March 2018. Information may change in the future.  Campbell Dallas is not responsible for content contained on 3rd party sites.