Review of the corporate intangible fixed assets regime

ICAEW submitted ICAEW Rep 53/18 Review of the Corporate Intangible Fixed Assets Regime on 11 May 2018 in response to the consultation launched by HM Treasury and HMRC on 19 February 2018.

The Executive Summary in the ICAEW response is reproduced below: 

“Intellectual property/intangible assets are driving the growth of individual countries and of the global economy. A recent report from the World Intellectual Property Organisation, a specialised agency of the UN, states that “Intellectual Property and other intangibles add twice as much value to products as tangible capital”. 

This is a topic that is incredibly important to the potential success of the UK economy and it is going to be equally important to ensure that the tax regime successfully matches the need to incentivise successful UK activity in this vital area while at the same time ensuring that any new regime is proportionate and cost effective. 

The current intangible fixed assets regime (IFA) was introduced in 2002 and has been amended on a couple of occasions since then, mainly to deal with perceived avoidance and to ensure fairness, but it has not been subject to any detailed review or amendment. 

The new, 2002, regime did not apply to intangible assets in existence as at 1 April 2002 which remained in the ‘old’ capital gains tax regime. 

This has created, in effect, two parallel tax regimes for intangible assets: those existing pre April 2002 and those intangible assets brought into existence after that or intangible assets which have been transferred between third parties after 1 April 2002. In the latter case the acquiring party is treated as acquiring an intangible asset to be treated under the new regime. 

A further difference between the two parallel regimes was created in 2011 in respect of the de-grouping charges which applies to both regimes but after 2011 any de-grouping charge applicable to pre April 2002 intangible assets would now, post 2011, be incorporated into the gain or loss on the share disposal. This means that if such a ‘share’ gain is exempt because the substantial shareholding exemption applies then the de-grouping charge is also exempt from any charge to tax. 

A further change to the IFA regime is explained in chapter 3 of the consultation document under which there is a restriction to the tax relief for a number of elements of business goodwill so that there is no relief under the tax regime until purchased goodwill is actually disposed of. 

The financial reporting system does not recognise the value of internally generated intangible fixed assets unless they are sold to a third party, in which case the cost is recognised by that third party. Any overview of the contribution that the tax system can make to enhancing the impact intangible fixed assets can have on the UK economy needs to consider what, if anything, could ensure that the tax system makes an appropriate contribution to the influence of intangible fixed assets.”