What is the exit charge on intangible assets?

When a UK company transfers an intangible asset (e.g., IP, goodwill) to a non-UK company, an exit charge applies based on the market value of the asset less its original cost. The charge ensures the UK captures the gain before the asset leaves the UK tax net. The exit charge on intangible assets applies when a UK company transfers an intangible asset (e.g., intellectual property, goodwill, brand name) to a non-UK group company. The charge is calculated as: (1) Market value — the market value of the intangible asset at the time of the transfer. (2) Cost — the original cost of the asset (or the amount that was previously brought into account for tax purposes). (3) Gain — the gain is the market value minus the cost. (4) Charge — the gain is subject to corporation tax at the applicable rate (25%). The exit charge ensures that the UK captures the gain on the intangible asset before it leaves the UK tax net. Without the exit charge, a UK company could transfer a valuable intangible asset to an overseas group company, and the gain would never be taxed in the UK. The exit charge applies to transfers on or after 1 July 2020 (with transitional rules for earlier transfers). The charge can be significant, especially for high-value IP (e.g., patents, trademarks, software). In some cases, the charge can be spread over several years (e.g., for IP transferred as part of a group restructuring). Specialist advice is essential before transferring intangible assets overseas. Relevant legislation: Corporation Tax Act 2009, Part 8 (intangible fixed assets); Finance Act 2019, Schedule 5 (exit charge on intangible assets); CTA 2009, Sections 786-795 (exit charges). Example: A UK company developed software with a cost of £500,000. The software is now worth £5 million. The company transfers the software to an overseas subsidiary. The exit charge is on the gain of £4.5 million (£5 million - £500,000). Corporation tax at 25% = £1,125,000. The company must pay £1,125,000 before the software leaves the UK tax net. Common mistake: Not obtaining a valuation of the intangible asset before the transfer. The exit charge is based on market value, and without a professional valuation, HMRC may challenge the value and impose a higher charge.

What is a degrouping charge?

A degrouping charge applies when a company leaves a capital gains group, taxing the gain on assets that were transferred within the group on a no-gain/no-loss basis. The charge ensures that intra-group transfers do not permanently avoid CGT. A degrouping charge applies when a company leaves a capital gains group (e.g., through a share disposal or a demerger). The charge taxes the gain on assets that were transferred within the group on a no-gain/no-loss basis, ensuring that the intra-group transfers do not permanently avoid CGT. How the degrouping charge works: (1) Intra-group transfers — when assets are transferred within a capital gains group (companies with 75%+ common ownership), the transfer is on a no-gain/no-loss basis (no CGT at the time of transfer). (2) Departure — when a company leaves the group (e.g., it is sold to a third party or demerged), a degrouping charge is triggered. (3) Calculation — the degrouping charge is calculated as the gain on the assets that were transferred within the group, based on the market value at the time of the departure minus the original cost (or the value at the time of the intra-group transfer). (4) Treatment — the degrouping charge is treated as a capital gain in the company leaving the group. (5) Exemptions — certain exemptions are available, including the substantial shareholding exemption (SSE) if the departing company is a qualifying trading subsidiary. The degrouping charge ensures that the UK captures the gain on assets that benefited from the no-gain/no-loss intra-group transfer before the company leaves the group. Relevant legislation: TCGA 1992, Section 179 (degrouping charge); TCGA 1992, Schedule 7AC (SSE exemption from degrouping charge). Example: A UK group transfers a property from Company A to Company B (both in the capital gains group) on a no-gain/no-loss basis. The property cost £1 million and is worth £3 million. Company B is then sold to a third party. A degrouping charge of £2 million (£3 million - £1 million) is triggered in Company B, subject to corporation tax at 25% = £500,000. If Company B qualifies for SSE, the degrouping charge may be exempt. Common mistake: Forgetting that a degrouping charge may apply when a company leaves the group. The charge can be significant, especially if the company holds assets that have appreciated since the intra-group transfer.

What happens when a UK company migrates overseas?

When a UK company migrates (transfers its residence overseas), an exit charge is triggered on all of the company's assets, as if they were sold at market value on the date of migration. The charge ensures the UK captures all untaxed gains before the company leaves the UK tax net. Company migration occurs when a UK company transfers its tax residence overseas. This triggers an exit charge on all of the company's assets, as if they were sold at market value on the date of migration. The exit charge applies to: (1) Chargeable assets — all chargeable assets held by the company (e.g., property, shares, intangible assets). (2) Intangible assets — the intangible fixed asset regime also applies an exit charge on intangible assets. (3) Calculation — the gain is calculated as the market value of each asset at the date of migration minus its cost (or tax base). (4) Charge — the total gain is subject to corporation tax at the applicable rate (25%). The exit charge ensures that the UK captures all untaxed gains before the company leaves the UK tax net. Without the exit charge, a UK company could simply migrate overseas and avoid UK tax on all its untaxed gains. The exit charge can be significant, especially for companies with valuable assets (e.g., property, IP, investments). Specialist advice is essential before considering migration, as there may be alternatives that achieve the same commercial result without triggering the exit charge. Relevant legislation: TCGA 1992, Section 185 (company migration — exit charge); CTA 2009, Sections 786-795 (intangible assets exit charge); TIOPA 2010 (transfer pricing on migration). Example: A UK company holds property worth £10 million (cost £5 million) and IP worth £5 million (cost £1 million). It migrates to Ireland. The exit charge is on the gains: property gain = £5 million (£10m - £5m), IP gain = £4 million (£5m - £1m). Total gain = £9 million. Corporation tax at 25% = £2.25 million. The company must pay £2.25 million before migrating. Common mistake: Assuming that migration is a simple way to reduce the tax rate. The exit charge can be very significant, especially for companies with valuable assets, and may outweigh any future tax savings from the lower overseas tax rate.

Can I spread the exit charge over several years?

In some cases, the exit charge on intangible assets can be spread over several years (typically 10 years), reducing the immediate tax burden. The spreading is available for certain types of transfers and requires HMRC approval. The degrouping charge and migration exit charge cannot generally be spread. The ability to spread the exit charge depends on the type of charge: (1) Intangible assets exit charge — for transfers of intangible assets to non-UK companies, the exit charge can be spread over 10 years (the '10-year spreading'). This means the gain is taxed in equal instalments over 10 years, reducing the immediate tax burden. The spreading is available if: (a) the asset is transferred to a non-UK company within the same group, (b) the transfer is part of a genuine commercial restructuring, and (c) the conditions for spreading are met. (2) Degrouping charge — the degrouping charge cannot generally be spread. The full charge is due in the accounting period in which the company leaves the group. However, if the degrouping charge is significant, the company may be able to pay it in instalments (by agreement with HMRC). (3) Migration exit charge — the migration exit charge cannot generally be spread. The full charge is due in the accounting period in which the company migrates. This can create a significant cash flow burden, especially for companies with high-value assets. (4) Mitigation — for migration and degrouping charges, the company should consider alternatives that do not trigger the charge (e.g., licensing rather than transferring IP, or restructuring before the assets appreciate significantly). Specialist advice is essential to determine whether spreading is available and to plan the transaction effectively. Relevant legislation: CTA 2009, Sections 786-795 (intangible assets — 10-year spreading); TCGA 1992, Section 179 (degrouping charge — no spreading); TCGA 1992, Section 185 (migration — no spreading). Example: A UK company transfers IP worth £10 million (cost £2 million) to an overseas subsidiary. The exit charge on the £8 million gain is spread over 10 years. The annual charge is £800,000 (£8 million / 10), taxed at 25% = £200,000 per year for 10 years. This reduces the immediate tax burden from £2 million to £200,000 per year. Common mistake: Assuming that all exit charges can be spread. Only the intangible assets exit charge can generally be spread (over 10 years). The degrouping charge and migration exit charge must be paid in full in the year of the transaction.

How can I avoid or mitigate exit charges?

Strategies include: licensing IP instead of transferring it, restructuring before assets appreciate significantly, using the SSE exemption for degrouping charges, and considering alternatives to migration. Specialist advice is essential before any transaction that may trigger an exit charge. Strategies to avoid or mitigate exit charges: (1) License rather than transfer IP — instead of transferring the IP overseas (which triggers the exit charge), the UK company can retain ownership of the IP and license it to the overseas company. The licence payments (royalties) are subject to UK tax, but the IP remains in the UK, and no exit charge arises. (2) Restructure before appreciation — if the exit charge is a concern, restructure before the assets appreciate significantly. The exit charge is based on the market value at the time of the transfer, so restructuring earlier (when the value is lower) reduces the charge. (3) SSE exemption — for degrouping charges, the SSE exemption may apply if the departing company is a qualifying trading subsidiary (10%+ holding for 12+ months, trading company). The SSE exempts the degrouping charge entirely. (4) Alternatives to migration — instead of migrating the UK company overseas, consider setting up a new overseas subsidiary and transferring the business (which may avoid the migration exit charge, though transfer pricing and other taxes apply). (5) Group relief — if the exit charge creates a loss in the company, the loss may be surrendered to other group companies via group relief. (6) Advance clearance — for complex transactions, seek HMRC clearance to confirm the tax treatment before proceeding. (7) Specialist advice — exit charges are complex and fact-specific, and specialist advice is essential before any transaction that may trigger a charge. Relevant legislation: CTA 2009, Sections 786-795 (exit charges); TCGA 1992, Schedule 7AC (SSE); CTA 2010, Part 5 (group relief). Example: A UK company has IP worth £10 million (cost £2 million) and wants to make it available to an overseas subsidiary. Instead of transferring the IP (which would trigger an exit charge of £2 million at 25%), the company licenses the IP to the overseas subsidiary for a royalty of £1 million per year. The royalty is subject to UK corporation tax, but no exit charge arises. The IP remains in the UK, and the company avoids the immediate £2 million tax charge. Common mistake: Proceeding with a transaction without considering the exit charge. The charge can be significant, and specialist advice should be sought before any transfer of intangible assets, degrouping, or company migration.

International Tax › Corporate

Exit Charges & Company Migration

When assets or companies leave the UK tax net, exit charges may apply. Understand the exit charge, degrouping charge, company migration rules, and how to manage exit charge risk.

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Exit charges are triggered when assets or companies leave the UK tax net, ensuring that the UK captures the untaxed gains on assets that have benefited from UK tax rules. The exit charge applies to intangible assets, and the degrouping charge applies to shares in group companies. Company migration — where a UK company transfers its residence overseas — also triggers exit charges. Understanding when exit charges apply and how to manage them is essential for groups considering restructuring or relocating assets.

The Exit Charge on Intangible Assets

When a UK company transfers an intangible asset (e.g., intellectual property, goodwill) to a non-UK group company, an exit charge may apply. The charge is based on the market value of the asset at the time of the transfer, less the original cost. The exit charge ensures that the UK captures the gain on the intangible asset before it leaves the UK tax net. The charge can be significant, especially for high-value IP.

The Degrouping Charge

When a company leaves a capital gains group (e.g., through a share disposal), a degrouping charge may apply. The charge taxes the gain on assets that were transferred within the group on a no-gain/no-loss basis. The degrouping charge ensures that intra-group transfers do not permanently avoid CGT. The charge is levied on the company leaving the group.

Company Migration

Company migration occurs when a UK company transfers its residence overseas. This triggers an exit charge on all of the company's assets, as if they were sold at market value on the date of migration. The charge ensures that the UK captures all untaxed gains before the company leaves the UK tax net. The exit charge can be significant, and specialist advice is essential before considering migration.

Managing Exit Charge Risk

To manage exit charge risk: (1) Plan ahead — assess the exit charge before restructuring or migrating. (2) Consider alternatives — explore alternatives that do not trigger an exit charge (e.g., licensing rather than transferring IP). (3) Time the transfer — time the transfer to minimise the charge (e.g., before significant value growth). (4) Spread the charge — in some cases, the exit charge can be spread over several years. (5) Seek clearance — for complex transactions, consider seeking HMRC clearance. Specialist advice is essential for any transaction that may trigger an exit charge.

Key Points

What You Need to Know

Exit charges apply when intangible assets leave the UK tax net
Degrouping charges apply when a company leaves a capital gains group
Company migration triggers an exit charge on all assets at market value
The exit charge ensures the UK captures untaxed gains before assets leave
Specialist advice is essential before any restructuring or migration

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