Since 2002, there have been two tax regimes which apply to intangible fixed assets (IFAs) in the UK - the CGT regime for old IFAs and a specific accounts based regime for new IFAs which broadly allow companies to claim tax deductions in line with the accounting amortisation of their IFAs.  Which regime applies depends on a number of factors including when the IFA was created and when and from who it was acquired. Generally, the CGT regime still applies to IFAs which were created by a company pre-1 April 2002 and which continue to be held within the same group.

The need to comply with both regimes has proven complex and costly for businesses, particularly from an administrative perspective.  This includes the need to track an asset's acquisition and usage history to determine which regime applies to it, which becomes more difficult over time with staff turnover and reductions in corporate memory.  It has also often led to debates with HMRC over the valuation of old IFAs v new IFAs on the disposal of brands.

However, when the UK government consulted in 2018 on bringing all IFAs within the new regime, it decided not to on the basis that it would unfairly disadvantage some companies, particularly those with accumulated capital losses. There was also disagreement on what value old IFAs should be recognised at for the purposes of the new regime (net present value, CGT base cost or something else?).

That is why it is somewhat surprising that the government now proposes, in the Finance Bill 2020, to bring more IP within the new regime.  This will capture any IFA acquired after 1 July 2020 no matter who it is from (unless it is a no-gain no-loss transfer of old IFAs within the UK group).  Where old IFAs are acquired from a UK related party which is not part of the group (such as a JV, or a founder), they will be converted into new IFAs; however, there is a restriction on the ability to claim amortisation relief unless and until the IFA is later sold at a loss.  Broadly, this is achieved by either deeming the company to have acquired the IFA for no cost, or deducting the market value of the asset from any costs incurred on acquisition, for the purposes of the rules which relate to amortisation deductions (but not the rules which apply to any subsequent realisation of that IFA).

This restriction does not apply to IFAs acquired from non-UK related parties. Furthermore, it does not apply to non-UK resident companies holding IFAs which migrate to the UK, although there may be benefits in transferring IFAs to the UK rather than migrating the companies that hold them.  Thus, the purpose of the proposed changes seems to be to encourage companies to onshore their group IP, and the OBR expects the changes to cost almost £200m a year accordingly.  It is worth noting that as the rules apply to IFAs acquired after 1 July 2020, it may be too late for companies which need to move IFAs as part of the "economic substance" rules introduced in certain offshore jurisdictions.

While it is a shame that the government did not take the opportunity to phase out the old regime for good (perhaps with some transitional measures for groups which hold valuable old IFAs in the UK and have significant capital losses available to offset against future disposals) and thus remove the need for businesses to consider two separate tax regimes for their IFAs, the proposed changes will make the UK a more attractive jurisdiction to hold group IP.