Chapter 16 IFA – related parties Flashcards
16.2 Related parties defined
A company is related if:
• a company controls or holds a major interest in another
• a company is under the same control as another
• a person/company is a participator or associate in a close company
• a person/company owns a company that is a participator or associate in a close company
• companies are in the same group for chargeable gains purposes
major interest is 40%
16.3 Intangible assets acquired from related parties
Acquired on or after 1 April 2002 but before 1 July 2020 – the tax treatment for the company acquiring the IFA is determined by how the asset was treated by the related party disposing the asset. If the intangible asset was an IFA then it will be treated as an IFA of the acquiring company. If the asset was treated as pre-FA 2002 IFA then it will continue to be treated this way, under the capital gains regime. So no tax relief will be available for amortisation on the chargeable gain.
Acquired on or after 1 July 2020 – all assets brought into the IFA regime. Where a pre-FA 2002 IFA is transferred to a related party that is a fellow UK group company at a no gain/ no loss it will continue to be treated as a pre-FA 2002 IFA.
Intangible fixed asset held by non-UK resident companies before 1 July 2020 will fall within the IFA regime regardless of anything.
16.4 Transfers of IFAs between related parties
The following rules apply:
• the transfer is treated as taking place at market value, this is overridden if the transfer takes place within a gains group
• rollover relief cannot be claimed
16.5 Royalties payable to related parties
Royalties are usually taxed on an accrual’s basis. If the royalty payable to a related party has not been paid within 12 months of the end of the AP and the royalty receivable has not been charged to CT, the royalty is not deductible until it has been paid. This would not happen if the recipient was an individual or non-resident company
16.6 Goodwill acquired on incorporation
Where the sole trader or partnership started before 1 April 2002 no tax relief is available for the amortisation or impairment of the goodwill following incorporation. If the business started after 1 April 2002 then tax relief can be claimed depending on when incorporation occurred:
• Incorporation: 1 April 2002 and 2 December 2004 – goodwill treated like other IFAs, the company can deduct the amount charged in the accounts or 4% straight line per annum
• Incorporation: 3 December 2004 and 31 March 2019 – no tax relief available for the amortisation or impairment
• After 1 April 2019 – relief only partially available if the goodwill transferred to the company by the sole trader was purchased goodwill and the sole trader or partnership also transferred other qualifying intellectual property to the company. The goodwill must have been acquired between 1 April 2002 and 7 July 2015 or after 1 April 2019. Tax relief is 6.5% per annum on the lower of the cost of goodwill or dix times the amount of qualifying IP
Where tax relief is denied for the amortisation of relevant assets, any debit arising on a subsequent realization of such assets will be allowed as a non-trading debit.
