Annex 1: Minor changes in the law Change 36: Charitable companies: exemption for income from intellectual property etc: sections 488, 490, 491 and Schedule 1
This change provides an exemption from corporation tax for certain income from intangible assets, whether or not the income is annual in nature.
Schedule 29 to FA 2002 introduced a comprehensive regime for corporation tax for income and gains arising from intangible fixed assets, rewritten as Part 8 of CTA 2009. Those rules apply in general only to certain assets (principally, but not exclusively, those created or acquired on or after 1 April 2002). But all income from royalties and certain telecommunication rights falls within the regime – see sections 896 and 897 of CTA 2009. These are all covered by the existing exemption in section 505(1)(c)(iic) of ICTA, rewritten as section 488(3)(a).
Assets that do not fall within the rules of Part 8 of CTA 2009 are referred to in that Act as “pre FA 2002 assets”. Any chargeable gains arising from those assets is exempt in the hands of a charitable company under section 256 of TCGA, provided the necessary conditions are met. But any income from those assets that does not fall within Part 8 of CTA 2009 is only exempt if it falls to be treated as an annual payment and is thus exempt under section 505(1)(c)(iizb) of ICTA.
In practice HMRC allow an exemption for income from pre-FA 2002 intangible assets, whether or not it is annual in nature. This change is in line with that practice, and mirrors the change made for income tax in section 536 of ITA. The rewritten legislation adopts the concept of a non-trading gain on an intangible fixed asset, and is written in terms that assume that the income in question would be such a gain, even though the assets fall outside Part 8 of CTA 2009.
Note that this extension only applies in the case of what would be a non-trading gain if Part 8 of CTA 2009 were to apply. If a gain arises in respect of a pre-FA 2002 asset in the course of a non-charitable trade the exemption in this section does not apply.
This change also affects the exemptions available to the bodies listed in section 490 and to scientific research associations under section 491 and is relevant to a number of entries in Schedule 1.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.