What does section 850 of the Corporation Tax Act 2009 do?

Section 850 prevents a company from claiming roll-over relief under Part 8, Chapter 7 of the Corporation Tax Act 2009 when it partly realises an intangible fixed asset and a related party acquires an interest in that asset, or in an asset whose value derives from it, as a result of or in connection with that part realisation.

What counts as a related party acquisition under section 850 CTA 2009?

A related party acquisition arises in two ways: first, where the related party acquires an interest of any description directly in the intangible fixed asset itself; second, where the related party acquires an interest in a separate asset whose value is derived, wholly or partly, from the original intangible fixed asset, catching indirect arrangements.

Why does section 850 exclude roll-over relief for part realisations involving related parties?

Section 850 is an anti-avoidance measure. It ensures companies cannot use partial disposals of intangible fixed assets to related parties as a mechanism for deferring corporation tax on gains. Without this restriction, groups could shift value between connected entities while rolling over taxable gains indefinitely into replacement assets.

What is the tax consequence if section 850 applies to a part realisation?

If section 850 applies, the company cannot defer its gain through roll-over relief. The full taxable amount arising on the part realisation of the intangible fixed asset must be recognised for corporation tax purposes in the accounting period in which the part realisation occurs, even if the proceeds are reinvested in a new intangible asset.

Corporation Tax Act 2009 section 850

Part realisation involving related party acquisition: exclusion of roll-over relief

Section 850 prevents a company from claiming roll-over relief when it partly disposes of an intangible fixed asset and a related party acquires an interest in that asset or in an asset whose value derives from it.

Roll-over relief (which allows gains to be deferred when proceeds are reinvested) is unavailable where there is a part realisation of an intangible fixed asset involving a related party acquisition.
A related party acquisition occurs when someone who is a related party to the company acquires any kind of interest in the intangible fixed asset being partly realised.
The exclusion also applies where the related party acquires an interest in a different asset whose value is derived, in whole or in part, from the intangible fixed asset in question.
This anti-avoidance measure ensures that companies cannot use partial disposals to related parties as a way of deferring tax on gains from intangible fixed assets.

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