Overview
2235.The sections in this Chapter are based on the provisions in Part 14 of Schedule 29 to FA 2002 “Commencement and transitional provisions” and some of the key terms used in the source legislation have been revised.
2236.There are two tests which together determine whether an asset can come within this Part of the Act. The first is that the asset must be goodwill or an intangible fixed asset for accountancy purposes and not fall within certain statutory exceptions.
2237.The second brings within the scope of this Part only those intangible fixed assets which:
came into existence on or after 1 April 2002; or
were acquired directly or indirectly from independent parties on or after that date.
2238.Assets in existence before 1 April 2002 remain outside this Part and subject to general corporation tax rules for as long as they remain within the same economic family as they did before that date. This basic rule is subject to a number of exceptions.
2239.The source legislation identifies intangible fixed assets that do not fall within the regime as “existing assets” and the law which governs their tax treatment as the “existing law”. This Part replaces these terms with new, more appropriate terms.
Section 880: Overview of Chapter
2240.This section gives a “route map” of the Chapter and introduces a revised approach to some key terms. It is new.
Section 881: Meaning of “pre-FA 2002 assets”
2241.This section defines a key term. It is new.
2242.This and section 880 together replace paragraph 117 of Schedule 29 to FA 2002 as a general introduction to the intangible fixed assets regime. The focus of paragraph 117 of Schedule 29 is the “commencement date”, that is the date at which the intangible fixed assets regime came into force: 1 April 2002. And it refers to the law which applied up to that date as “the existing law”. This Part revises the approach to both these concepts.
2243.This Part drops “the commencement date” as a defined term, throughout the rules and refers instead directly to 1 April 2002 on each occasion that such reference is necessary.
2244.This Part also drops the expression “the existing law” and refers to “the pre-FA 2002 law”. Similarly dropped is the related expression “existing assets” (defined in paragraph 118(3) of Schedule 29 to FA 2002) in favour of “pre-FA 2002 assets” (defined in this section).
Section 882: Application of this Part to assets created or acquired on or after 1 April 2002
2245.This section gives the general timing rule to identify which assets come within this Part. It is based on paragraph 118 of Schedule 29 to FA 2002.
Section 883: Assets treated as created or acquired when expenditure incurred
2246.This section defines when an asset is created or acquired for the purposes of section 882: when the expenditure is incurred. It is based on paragraph 120 of Schedule 29 to FA 2002.
Section 884: Internally-generated goodwill: time of creation
2247.This section gives a special rule defining when internally-generated goodwill is created for the purposes of section 882. It is based on paragraph 121 of Schedule 29 to FA 2002.
Section 885: Certain other internally-generated assets: time of creation
2248.This section gives a special rule defining when internally-generated assets (other than goodwill) not qualifying for capital allowances, are created for the purposes of section 882. It is based on paragraph 122 of Schedule 29 to FA 2002.
Section 886: Assets representing production expenditure on films: time of creation
2249.This section gives a special rule defining when an asset representing production expenditure on films is treated as created for the purposes of section 882. It is based on section 51(2) of FA 2006.
Section 887: General rule
2250.This section gives a general rule to define when expenditure on acquisition of an asset is incurred for the purposes of section 883 and, ultimately, section 882. It is based on paragraph 123 of Schedule 29 to FA 2002.
2251.The general rule in subsection (1) is subject to two qualifications to which subsection (2) gives a signpost and which limit any conflict with pre-FA 2002 timing rules for capital gains and capital allowances.
Section 888: Cases where chargeable gains rule applies
2252.This section qualifies the rule in section 887 in respect of certain expenditure that would not have qualified for any form of tax relief under the pre-FA 2002 law. It is based on paragraph 124 of Schedule 29 to FA 2002.
2253.Goodwill is an example of an asset potentially within this rule.
2254.If the expenditure does not fall within subsection (1)(c) (that is, it would have been treated as incurred on or after 1 April 2002 for capital gains purposes) this section is not in point and the general rule in section 887 applies to the expenditure.
Section 889: Cases where capital allowances general rule applies
2255.This section qualifies the rule in section 887 in respect of certain expenditure that would, before FA 2002, have qualified for relief under the capital allowances provisions. It is based on paragraph 125 of Schedule 29 to FA 2002.
2256.A patent is an example of an asset potentially within this rule.
2257.This section replicates the general rule for capital allowances in section 5 of CAA.
Section 890: Fungible assets: application of section 858
2258.This section provides for separate pools of fungible assets in order that expenditure on them after 1 April 2002 can come within this Part. It is based on paragraph 126 of Schedule 29 to FA 2002.
2259.This and the next section complement section 858 which treats fungible assets held by the same person in the same capacity as indistinguishable parts of a single asset. An example of a fungible asset is a milk quota which grows or diminishes as additional assets of the same kind are acquired or realised. So successive acquisitions are treated as increasing the size of the single asset, whereas a disposal of some, but not all, of the units comprising the single asset is treated as a part realisation.
2260.The general principle of the intangible fixed assets rules is that only expenditure on or after 1 April 2002 should come within the regime. But without further rules this would not be achieved for fungible assets. If fungible assets of a particular kind are held by a company before 1 April 2002 any additional assets of that kind acquired subsequently would fail the time test in section 882 because the acquisitions would be regarded as merely enlarging an existing single asset.
2261.The separate pool approach of this section enables the time test in section 882 to be satisfied by fungible assets acquired on or after 1 April 2002 which are additions to assets of the same kind.
Section 891: Realisation and acquisition of fungible assets
2262.This section gives identification rules for transactions involving fungible assets treated as comprising separate pools under the previous section. It is based on paragraph 126 of Schedule 29 to FA 2002.
2263.Identification rules are necessary to determine which of the two pools a transaction in fungible assets diminishes or expands. And they are also necessary because the nature of fungible assets is such that it could often be relatively easy to dispose of an asset of this kind held before 1 April 2002 and replace it immediately afterwards with a newly acquired, identical asset. The intangible fixed assets rules are not intended to apply to assets “recycled” in this way.
Section 892: Certain assets acquired on transfer of business
2264.This section preserves symmetry of tax treatment between the intangible fixed assets rules and the capital gains rules on certain transfers of intangible fixed assets that are outside the intangible fixed assets regime. It is based on paragraph 127 of Schedule 29 to FA 2002.
2265.The capital gains provisions listed in subsection (2) allow a no gain/no loss treatment on the transferor of an intangible asset to a transferee who is not a related party. Without a special rule, in the circumstances described in subsection (1), the asset transferred would be within this Part in the hands of the transferee and carry an acquisition cost based on the “fair value” of the asset in the accounts of the transferee. This could result in relief under this Part being available on a sum that was not liable to tax in the hands of the transferor.
2266.To avoid this mismatch between the treatment of the transferor and the transferee, this section ensures that the asset transferred in these circumstances is excluded from this Part in the hands of the transferee as well as the transferor. The asset remains within the capital gains rules in the hands of the transferee, with an acquisition cost equal to the transferor’s disposal value.
Section 893: Assets whose value derives from pre-FA 2002 assets
2267.This section excludes certain assets from the intangible fixed assets rules to the extent that they derive their value from excluded assets. It is based on paragraph 127A of Schedule 29 to FA 2002..
2268.Subsection (1)(e) introduces a new term (“the preserved status conditions”) to refer to the conditions set out in section 894.
Section 894: The preserved status conditions etc
2269.This section defines a key term in the previous section. It is based on paragraph 127A of Schedule 29 to FA 2002.
Section 895: Assets acquired in connection with disposals of pre-FA 2002 assets
2270.This section excludes certain assets from the intangible fixed assets rules if acquired from a related party in connection with the disposal of other excluded assets. It is based on paragraph 127B of Schedule 29 to FA 2002.
Section 896: Application to royalties
2271.This section brings royalties within the intangible fixed assets regime. It is based on paragraph 119 of Schedule 29 to FA 2002.
2272.This section rewrites only those parts of paragraph 119 of Schedule 29 to FA 2002 which have enduring effect and are not transitional.
2273.Paragraph 119(2) to (4) of Schedule 29 to FA 2002 ensures the correct tax treatment of royalties during the transitional period spanning 1 April 2002. They are spent and are not rewritten.
Section 897: Application to pre-FA 2002 assets consisting of telecommunication rights
2274.This section brings certain telecommunication rights within the intangible fixed assets regime. It is based on paragraph 128 of Schedule 29 to FA 2002.
2275.Subsection (2) ensures that the intangible fixed assets rules work properly for telecommunication rights dealt with under a previous special tax regime.
2276.Paragraph 128(4) of Schedule 29 to FA 2002 is spent and is not rewritten.
Section 898: Relief where assets disposed of on or after 1 April 2002
2277.This section extends roll-over relief under Chapter 7 of this Part to the disposal of certain intangible fixed assets otherwise remaining within the capital gains rules. It is based on paragraph 130 of Schedule 29 to FA 2002.
2278.The effect of this section is that the “amount available for relief” (in section 758(1)) reduces the company’s consideration received for the existing asset for the purposes of the capital gains rules and the tax cost of the new asset.
Section 899: Relief where degrouping charge on asset arises on or after 1 April 2002
2279.This section extends roll-over relief under Chapter 7 of this Part to the deemed disposal of certain intangible fixed assets otherwise remaining within the capital gains rules. It is based on paragraph 131 of Schedule 29 to FA 2002.
2280.It applies when a capital gains degrouping charge under section 179 of TCGA arises on the deemed disposal of intangible fixed assets which would have come within the intangible fixed assets rules had they not been pre-FA 2002 assets and when the event triggering the degrouping charge is on or after 1 April 2002.
2281.The effect of this section is that the “amount available for relief” (in section 758(1)) reduces the company’s consideration deemed received for the pre-FA 2002 asset for the purposes of the capital gains rules and the tax cost of the new asset.
Section 900: Meaning of “chargeable asset within TCGA” in sections 898 and 899
2282.This section defines the key term used in the two preceding sections. It is based on paragraph 130 of Schedule 29 to FA 2002.
2283.Subsection (3) substitutes a cross-reference to section 10B of TCGA for the cross-reference to section 10(3) of TCGA in the source legislation. Section 10(3) was repealed in FA 2003 and replaced by section 10B. The substitution in this section reflects the implied substitution by section 17(2)(a) of the Interpretation Act 1978 and so preserves the effect of the source legislation.
