What is the tax treatment of intangible assets and amortisation?
Short Answer
In a UK asset purchase, tax relief on acquired intangibles generally follows their accounting amortisation. Goodwill and customer-related intangibles get relief only with qualifying IP, at 6.5% a year since April 2019. A share purchase gives none.
Full Explanation
In a UK asset purchase, tax relief on acquired intangibles generally follows their accounting amortisation. Goodwill and customer-related intangibles get relief only with qualifying IP, at 6.5% a year since April 2019. A share purchase gives none.
For corporation tax, the treatment depends on how the business is bought and on the type of asset. In an asset purchase, acquired intangible assets are generally relieved over their useful life in line with the accounts (CTA 2009 Part 8), or by election at a fixed 4% a year (CTA 2009 s730). For example, a £2M patent with a 5-year life yields £400K annual amortisation, which is tax-deductible. Goodwill and customer-related intangibles (customer lists, customer relationships and unregistered trade marks) are treated differently: bought between 8 July 2015 and 31 March 2019 they get no amortisation relief (Finance (No. 2) Act 2015), and from 1 April 2019 relief returns at a fixed 6.5% a year only where they are bought with qualifying IP, capped at six times the cost of that IP (Finance Act 2019). In a share purchase the target keeps its own tax basis, so the price paid brings no relief and the goodwill and intangibles recognised on consolidation carry no tax base. This creates a mismatch: a company acquiring a business at a premium records goodwill but, in most cases, cannot offset it against taxable income. Internally developed intangibles face stricter criteria: R&D costs are generally deductible when incurred (rather than capitalised), except under specific conditions (ASC 350 for software, ASC 730 for general R&D). This asymmetry favours acquisition-focused companies over organically growing companies. Transfer pricing rules (important for multinational companies) require that intangible asset ownership and allocation be documented and defensible. Poor transfer pricing documentation can trigger HMRC assessments. For tax planning, the allocation of IP ownership between entities (UK parent, overseas subsidiary) is material: licensing technology from a low-tax jurisdiction to a UK operating company can shift UK taxable profits overseas (though anti-avoidance rules limit this). Professional tax advice is essential for companies with significant intangible assets or international structures.
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Further Reading
What is the IAS 38 revaluation model for intangible assets?
IAS 38 permits revaluation of intangible assets to fair value if an active market exists, but this is rarely used in practice because active markets for most intangible assets do not exist.
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