Partial reinstatement of goodwill relief for IP businesses

HMRC and the Treasury have released detailed proposals for the partial reinstatement of relief for goodwill acquired in businesses with eligible intellectual property (IP) which will be included in Finance Bill 2018-19, alongside changes to the de-grouping charge rules which will be effective from 7 November 2018

The move follows the consultation in spring 2018 on the case for reforms to the corporate intangibles regime with the objective of simplifying it and making it more effective in supporting economic growth.

The government received 29 written responses to the consultation, with half coming from firms of advisers, and the rest from representative bodies and individual businesses.

Respondents were generally in favour of changes to simplify the intangible fixed assets regime and increase the scope and generosity of relief. Most respondents felt that the 2015 goodwill restriction weighed on the UK’s competitiveness and should be removed. There was a broad consensus that the exclusion of pre-Finance Act 2002 assets was a source of complexity and should also be removed.

However, there was a wide range of views as to how this should be achieved. Some respondents suggested changing the fixed rate of relief, although for most this was not a priority. Respondents largely supported the idea of aligning the IFA regime’s de-grouping charge rules with similar rules in the chargeable gains.

The government considers that the policy changes around goodwill relief and de-grouping should be implemented at the next available opportunity in order to have maximum effect. The Finance Bill 2018-19 will therefore introduce legislation to give effect to the de-grouping changes from 7 November 2018.

The change to providing targeted relief for the cost of acquired goodwill is scheduled to take effect from 1 April 2019. Following a brief consultation, the government will seek to introduce legislation for these changes through government amendment to Finance Bill 2018-19.


The consultation explored changes in several areas, including the exclusion of assets created prior to 1 April 2002 (‘pre-Finance Act 2002 (pre-FA02) assets) from the intangible fixed assets regime, the 2015 restriction on relief for purchased goodwill, the de-grouping charge and the elective fixed rate of relief.

In its summary of responses, the government acknowledged that that the pre-FA02 exclusion is a source of complexity in the intangible fixed assets regime, particularly in relation to business acquisitions, and that simplification would be welcomed.

However, the government does not think that there would be any significat negative impacts on business if the pre-FA02 exclusion was removed, so it will not make changes in this area.

In terms of the goodwill restriction, the government said it recognised this may have had a pronounced negative impact on the acquisition of IP-intensive businesses, which are frequently valued at a significant premium to their underlying individual asset values – often due to asset synergies or valuation methods.

The government accepts that to wholly deny relief for goodwill in these situations is not consistent with the government’s wider approach to provide relief for the cost of acquired IP assets. To address this, the government plans to re-introduce relief for acquired goodwill to the extent that the goodwill value has a strong connection to IP owned by the acquired business, that would itself qualify for relief.

It is difficult to precisely measure the contribution of IP assets to goodwill arising on a business acquisition. The government therefore proposes to introduce a proxy for the contribution of IP assets to goodwill, by allowing relief for goodwill by reference to the value of the eligible IP in the acquired business. Specifically, the government proposes to allow relief for the cost of acquired goodwill up to the fair value of the eligible IP in the acquired business.

The government proposes that, for the purpose of the new relief, the categories of IP that are eligible should broadly correspond to the existing definition of IP including patents, registered trade marks, registered designs, and copyright or design rights.

The leading proposal is that the rate at which relief is given will continue to be based on accounting amortisation and impairment debits, subject to an optional election for fixed rate relief at 4% per annum. However, the amount of goodwill that qualifies for relief will be capped at the fair value of eligible IP or the total value of goodwill, whichever is lower.

On de-grouping, the government intends to legislate so that a de-grouping that occurs as a result of a share disposal that qualifies for substantial shareholdings exemption (SSE) will be tax neutral for assets within the IFA regime.

While recognising the importance of the fixed rate election to certain businesses. the government argued that the availability of accounts-based deductions in most cases means that the UK’s rates of relief are comparable to those in other jurisdictions, and has stated it does not intend to change the fixed rate.

Consultation outcome Review of the corporate intangible fixed assets regime

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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