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Since the 2015 Summer Budget, there has been no corporation tax relief available on the amortisation of goodwill acquired by a company, irrespective of whether that goodwill was acquired from a related or third party.

However, in a bid to make the UK more competitive in the tax treatment of acquired intangible assets, the government announced a new targeted relief for goodwill in the 2018 Autumn Budget.

From 1 April 2019, where goodwill has been acquired from a third party as part of a business purchase in which qualifying intellectual property is also purchased, corporation tax relief will be available at a fixed rate of 6.5% per annum on the value of the goodwill acquired, subject to a cap of 6 times the value of the qualifying intellectual property purchased.

The relief is not available for internally generated goodwill acquired in related party incorporation, and acquisitions prior to 1 April 2019 will continue to be subject to the tax treatment prevailing at the time it was acquired.

DEFINITION OF QUALIFYING INTELLECTUAL PROPERTY

Qualifying intellectual property includes the following:
• Patents
• Registered designs
• Copyright or design rights
• Plant breeders’ rights
• Right under Section 7 of the Plant Varieties Act 1997

CALCULATION OF RELIEF – EXAMPLE

Company A acquires Company B, with goodwill valued at £450,000, and patents held valued at £50,000.

The amount of tax relief Company A will be able to claim on the amortisation of the goodwill purchased is capped at 6 times the value of the qualifying intellectual property, which in this case would be £300,000.

Therefore the annual allowable amortisation will be £300,000 x 6.5% = £19,500, with the relief being available for a total of just over 15 years.

CONCLUSION

Whilst the new 6.5% amortisation relief is a welcome development for corporate taxpayers, it excludes a large number of acquisitions which do not include qualifying intellectual property, and does not restore the level of tax relief which was available pre 8 July 2015.

If you would like any further information on this subject, please do not hesitate to contact us.

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