10 March 2021

Regine changes for intangible fixed assets: transitional rules

What are intangible fixed assets?

Most business owners are aware that an asset is something which is owned or controlled by the business. Assets are put into different categories depending on the life of the asset and whether it has a physical form. A fixed asset is something which will be owned or controlled by the business for more than one year and an intangible asset is something which has value, but that cannot be seen or touched as it has no physical substance.

Examples of intangible fixed assets are goodwill (which comes about from changes in ownership) and brand recognition as well as intellectual property, such as patents, trademarks and copyrights.

The Intangible Fixed Assets (IFA) regime

The Intangible Fixed Assets (IFA) regime was introduced in 2002 with the purpose of taxing companies on their intangible fixed assets. A review of the IFA regime was carried out between February and May 2018 and the chancellor announced some changes in the 2018 budget. Further changes were announced in the 2020 budget, which will allow intangible assets created before 1st April 2002 and which are acquired after 1st July 2020, to be brought within the regime.

The aim of this measure is to remove the restriction which stops some companies from being able to claim tax relief on older, more established intangible fixed assets. Corporation tax relief for the acquisition costs will now be available in circumstances where it was not previously. Intangible fixed assets can now be taxed and relieved under a single regime when acquired from 1st July 2020.

Although the change officially comes into effect from 1st July 2020, transitional rules will apply from 11th March 2020 to 30th June 2020 to protect companies that are holding intangible assets chargeable to corporation tax immediately before the effective date. This will include companies with accrued losses or gains which relate to intangible assets and that are dealt with through the capital gains rules.

Prior to this change, the tax rules in Part 8 of the Corporation Tax Act 2009 (CTA 2009) apply to the treatment of intangible fixed assets. These rules only relate to intangible assets created or indeed acquired from an unrelated party, on or after 1st April 2002. Any intangible assets created or acquired before 1st April 2002 are known as “pre-FA 2002 assets” and the corporate capital gains rules outlined in the Taxation of Chargeable Gains Act 2002 (‘TCGA 1992’) and Part 9 of CTA 2009 apply to pre-FA 2002 assets.

Legislation will be introduced under the Finance Bill 2020 to amend the tax rules in Part 8 of the Corporation Tax Act 2009 and allow intangible fixed assets to be relieved and taxed under one regime from 1st July 2020. Any intangible assets which are not within the corporation tax charge prior to acquisition will not be affected and there will be no need to consider whether the asset is a pre-FA 2002 asset. The tax treatment of any pre-FA 2002 assets already within the charge to corporation tax before 1st July 2020 will not be altered.

This measure is expected to have a positive impact on businesses in obtaining relief on pre-FA 2002 assets, especially businesses with older and more established assets such as trademarks, design rights and patents. It is not expected that any one sector will benefit more than another. There may be some costs involved for businesses to interpret and implement the new rules, but these will be minimal and not outweigh the expected benefits. There will be some cost to HMRC as computer systems are updated to reflect the change. As with all new measures, this will be kept under review to ensure the desired outcomes are still in place.

Questions? We can help!

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