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Nothing will come of nothing (Oh yes it will...)

Forgive the unfamiliar mix of King Lear and pantomime. But sometimes (not often enough) something does come of “tax nothings”.

The relief under Sch 29 FA2002 for expenditure on intangible assets is by now pretty well known: tax relief broadly follows the rules for amortisation under GAAP.

Relief extends to the incidental costs of acquisition of qualifying assets – legal costs on acquiring goodwill for example. In principle it also extends to any expenditure “for the purpose of maintaining, preserving or enhancing, or defending title to the asset” though often it will be the case that the cost of successfully preserving or defending title will be the sort of revenue expenditure that was deductible long before Sch 29 was a twinkle in the Chancellor’s eye.

Interestingly, expenditure remains deductible even if abortive. So if a company (and remember – the relief is available only to companies) incurs legal costs on unsuccessfully trying to establish title to some intangible asset that it never in fact owns – a disputed trade mark for example - those costs can rank for relief. The same principle applies to the costs of an abortive attempt to buy an asset - such as a deal to buy a business including goodwill that falls through at the last minute.

Contrast this with the acquisition of share capital. If the deal proceeds, the costs including legals will be capitalised and there is no relief for their amortisation. If the deal aborts, the costs are a tax “nothing” – there is no asset of which they can form the base cost and no Sch 29 relief either. Is this logical? No – but it’s the law.

Finally - what if the deal falls apart before you determine whether it was to be an asset purchase or a share transaction? Don’t despair - it may well be possible to show that the expenditure should be regarded (at least in part) for the purpose of acquiring a qualifying asset.