Corporation Tax relief on goodwill

In the 2015 Summer Budget the government removed Corporation Tax relief on the amortisation of goodwill acquired by a company on or after 8 July 2015.  This meant that a company would only be able to claim relief for the cost of the goodwill on the eventual disposal of the asset.

Move forward three years, and in a bid to improve the attractiveness of the UK as a ‘place to do business’ the government announced in the Autumn Budget that they would introduce a targeted relief for goodwill.  Companies that acquire goodwill on or after 1 April 2019 will now receive relief for goodwill up to six times the value of any intellectual property (IP) assets in the business being acquired.  The categories of IP assets will include patents, registered designs, copyright and design rights and plant breeders’ rights.

The big difference between the relief available for pre-8 July 2015 assets and the new targeted relief is that rather than being able to follow the amortisation debited in the company’s accounts, the relief will be given at a fixed rate of 6.5% in all cases.

Whilst this is good news for some companies, the government has confirmed that the restriction on relief will continue to apply in relation to internally generated goodwill acquired in a related party incorporation.  In addition, the relief is only of benefit where the business being acquired holds intellectual property other than goodwill.

One other piece of good news on goodwill is that from 7 November 2018 relief will be given for degrouping charges on intangibles in line with the relief on degrouping charges on capital gains assets.  The relief will apply when a parent company sells a subsidiary company which owns an intangible asset, and the parent company is claiming the Substantial Shareholdings Exemption.

Please do note that all of the above commentary is subject to enactment of the relevant clauses in the 2019 Finance Bill.

If you would like to discuss this in more detail please email Jenny Trunks or call us on 01772 821 021.