What does section 818 of the Corporation Tax Act 2009 do?

Section 818 provides tax-neutral treatment for intangible fixed assets such as goodwill, patents and trademarks transferred between companies as part of a scheme of reconstruction. No taxable gain or allowable loss arises at the point of transfer, provided the statutory conditions are met. The transferee effectively steps into the shoes of the transferor for corporation tax purposes.

What conditions must be met for tax-neutral treatment under section 818?

The transfer must occur under a scheme of reconstruction as defined in section 136 of the Taxation of Chargeable Gains Act 1992. The transferor must receive no consideration other than the transferee assuming liabilities. The assets must be chargeable intangible assets for both companies, and the reconstruction must satisfy the genuine commercial transaction requirement under section 831.

When does section 818 not apply to a company reconstruction?

Section 818 does not apply where the transfer already qualifies for tax-neutral treatment as an intra-group transfer under section 775. It also does not apply where either company is an incorporated friendly society entitled to tax exemption or a dual resident investing company. The reconstruction must also not be primarily a tax avoidance scheme.

What is the practical effect of tax-neutral treatment on the transferee company?

The transferee takes over the intangible fixed assets at the transferor's tax written-down value, recognising no gain or loss on the transfer. The transferee continues to claim debits such as amortisation or impairment as if it had always held the assets. This ensures genuine business reorganisations proceed without an immediate corporation tax charge.

Corporation Tax Act 2009 section 818

Company reconstruction involving transfer of business

Section 818 provides tax-neutral treatment for intangible fixed assets transferred between companies as part of a scheme of reconstruction, subject to certain conditions.

Where a company reconstruction involves transferring all or part of a business to another company, and the transferor receives no consideration (other than the transferee assuming liabilities), the transfer of intangible fixed assets can be treated as tax-neutral.
The relief only applies where the intangible fixed assets are chargeable intangible assets for both the transferor immediately before and the transferee immediately after the transfer.
The section does not apply to intra-group transfers (which are covered separately), nor where either company is an incorporated friendly society entitled to tax exemption or a dual resident investing company.
The reconstruction must meet the genuine commercial transaction requirement — meaning it must be carried out for bona fide commercial reasons and not as part of a tax avoidance scheme.

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