RSS feedsMy client, a limited company, has been in business since the early 1990s. In July 2006, the company disposed of some of its business assets to a third party. Included in the amounts received was £700,000 attributable to goodwill. My client is considering acquiring a new business and the intention is to rollover the gain. He is looking at rolling the proceeds into a property. I have looked at the tax rules and as the goodwill is ‘old’ goodwill – in other words, pre-April 2002 – this should be okay. Can you please confirm this?
The rules on intangibles are complex and you are in danger of falling into one of the most common traps. Under the capital gains tax rollover rules in section 152 TCGA 1992, the sale of goodwill can be rolled into property. This is because both property and goodwill fall into the classes of assets listed in section 155 TCGA 1992.
The rules on intangibles were introduced for companies and apply to intangibles (including goodwill) created or acquired on or after 1 April 2002. Where a company has pre-2002 goodwill, this continues to fall within the capital gains tax rules.
Because of this, it is assumed (wrongly) that this will also be the case in respect of any rollover claims, where the intangible is sold and the proceeds reinvested into a new asset.
However, here is where the trap lies. While the majority of the provisions in relation to intangibles relate to the post 1 April 2002 assets, the rollover provisions are different. Section 132, Sch 29 FA 2002 states:
‘1) in relation to the disposal after commencement of an asset that is both (a) an asset of a class specified in section 155 of the Taxation of Chargeable Gains Act 1992 (assets qualifying for rollover relief on replacement of business asset), and (b) an intangible fixed asset, the period specified in section 152(3) of that Act (period within which new assets must be acquired) does not include, and may not be extended so as to include, any period after commencement.’
This means that intangible assets treated as created or acquired after 1 April 2002 cannot be matched with any disposal in support of a claim for capital gains tax business assets rollover relief.
This removes Classes 4, 5, 6 and 7 from section 155 TCGA 1992 for the purposes of corporation tax for acquisitions on or after 1 April 2002 of new assets that are intangible assets. Therefore, in your particular case, the company can only apply the proceeds to acquire intangibles falling within the new rules if a rollover claim is to be successful.
Paula Tallon is director and head of direct tax at Chiltern plc –tallonp@chilternplc.com
