The new regime modernises the corporate tax base, providing relief for the cost of acquiring intangible assets where none had previously been available.
The new regime will provide for companies to obtain tax relief for the cost of intangible assets (including goodwill and intellectual property), in most cases based on the amortisation reflected in their accounts. There is also provision for tax allowances at a fixed rate of 4% per annum to provide for relief in the case of indefinite or longer life assets.
The new rules will apply to expenditure on the creation, acquisition and enhancement of intangible assets (including abortive expenditure), as well as expenditure on their preservation and maintenance. Relief under the new regime will therefore be available for the cost of internal development, as well as acquisition, of intangible assets.
Payments for the use of intangibles will also be within the scope of the new regime. The charge on income rules will no longer apply to royalty payments and relief will be given in line with the accounting treatment. The taxation of royalty receipts will also follow the accounts.
Disposals of intangible assets will be taxed on an income basis under the new regime. A roll-over relief will apply where disposal proceeds are reinvested in new intangible assets within the regime.
Intangible assets that companies hold at commencement will generally be taxed under current law, subject to the changes in roll-over relief described below.
Capital gains on the disposal of intangible assets held at commencement will qualify, where appropriate, for roll-over relief under the new arrangements for intangible assets.
Disposals by companies of goodwill and agricultural and fishing quotas held at commencement will not qualify for capital gains roll-over relief, except where reinvestment under the capital gains rules has taken place before 1st April 2002 and within the 12 month period prior to the disposal.
Purchases of goodwill and quotas after commencement will no longer be qualifying acquisitions for the purpose of capital gains roll-over relief.