Feb 222015

This is the last article in our series on asset rollovers. In Part One, we looked at capital assets, in Part Two we saw how IP rollovers work. In this part we shall see how it is possible to sell an IP asset and defer the tax by reinvesting the proceeds in the shares of a company, effectively looking through the corporate vehicle to the underlying IP that it holds.

(This article can be downloaded in pdf format at Academia.edu.)

Rolling over IP into shares – how does it work?

Assume we have a company which has sold its IP and is looking to shelter the tax by reinvesting the proceeds. Instead of buying another asset directly, it decides to acquire a company that has some IP of its own. This is what the legislation requires:

  • A company A, acquires a controlling interest in a company B. This is tightly defined – B cannot be a member of A’s group to begin with, but becomes a member as a result of A acquiring the necessary shares. In short, the rollover applies when a new company joins A’s group1;
  • B, and any other company that joins A’s group, must own IP assets that are already within the IP regime. These are the underlying asserts which A is treated as acquiring by looking through the relevant corporate structure. The other companies can be B’s own subsidiaries, but this is not necessarily the case – it is any company that becomes a member of the group as a consequence of A’s acquisition. This is illustrated by the diagram below2;

IP Rollover into Shares

As with a standard IP rollover, one calculates the “amount available for relief”. This figure is applied in the following way3:

  • As before, deduct the amount available for relief from the sale proceeds of the old asset, thereby reducing the taxable gain;
  • Choose which asset to rollover the gain into, and then deduct the amount available for relief against the asset’s tax written down value4.

Note the modification of the usual rule, where the deduction is against the cost of the new asset5. For the new asset has already been acquired and is already being written down by the new group company that owns it. It therefore makes sense to deduct the amount available for relief against the tax written down value.

There are in fact a number of ways in which rolling over into shares is different from a direct rollover into assets:

  • Firstly, it is possible to rollover into more than one asset. The assets may be held by the same company, or spread between different companies – as long as the companies involved are all new group members. In these circumstances the amount available for relief is split up and allocated between the assets6;
  • Secondly, the underlying assets must already be within the IP regime. This is not necessarily the case for a direct rollover. In the latter case, the very act of buying the new asset brings it into the regime – however, in a look through situation, the pretence that the company is buying the underlying assets held by the new group member doesn’t go so far7.

One final point to note – while one can rollover into shares, it isn’t possible to do it the other way round.

Why doesn’t it work for capital rollovers?

Recall that in a group situation, the group is treated as one economic unit, operating a single trade8. In these circumstances one can rollover an asset sold by one group member into a new asset acquired by another group member. So at first glance, it should be possible to sell a capital asset and then acquire a new group company and rollover accordingly.

But this is not what the group rules are about. For a group rollover to work, the new asset must be acquired at a time when both companies are already in the same group9. This is not the same as acquiring a new group member and then rolling over into the underlying asset.

Planning opportunity?

The idea of rolling over into shares is an attractive proposition, and at first glance leads to an interesting planning opportunity.

IP Rollover into Shares planning

Suppose we have a corporate group, which acquires a new subsidiary Tradeco. V has sold some IP and defers part of the tax by rolling over into Tradeco’s IP assets. If V sells Tradeco one year later:

  • There is no tax on capital gains, as the transaction is exempt under the substantial shareholding rules10;
  • The sale of Tradeco doesn’t trigger a deemed sale of the underlying IP.

In short, the IP tax that was deferred on the rollover is no longer a problem for V.

This idea would work if IP rollovers worked in the same way as capital rollovers. In a capital rollover, the deferred tax only comes back within the charge when the new asset is sold (subject to the depreciating asset rules).

But we are dealing with IP – we have already seen that the relief is given by the tax being paid in installments rather than upfront. In particular, when rolling over into shares, the underlying assets are subject to a reduced tax written down value – in other words, Tradeco loses the right to the tax relief that would have been available had no rollover been claimed. So while Tradeco remains within the group, it is the group that bears the cost of this lost tax relief. This continues to be the case after Tradeco is sold, for P the buyer, will wish to take the rollover into account in setting the purchase price.

So not really a planning opportunity after all.


This brings us to the end of our series on rollovers. Of course, there is a lot more in terms of detail, but hopefully the key concepts should have become apparent to readers. Thank you all for your time and your patience!


  1. CTA 2009 s 778(1)(a), (3).
  2. CTA 2009 ss 778(1)(b), (2), 779(4).
  3. CTA 2009 ss 758(1) to (3), 779(1), (2) – the amount available for relief is normally calculated by reference to the amount expended on the new assets. When the new assets are acquired through a company, this would normally be the cost of the shares – however, this latter figure is capped by the tax written down value of the underlying IP assets which are the subject of the rollover.
  4. CTA 2009 s 779(5).
  5. CTA 2009 s 758(1)(b).
  6. CTA 2009 ss 779(6), (7).
  7. CTA 2009 ss 756(3), 779(4), 882.
  8. TCGA 1992 s 175.
  9. TCGA 1992 s 175(2A).
  10. TCGA 1992 Schedule 7AC – this assumes all the conditions apply.
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Satwaki Chanda

Satwaki Chanda

Satwaki Chanda is a tax lawyer with a First Class degree in Mathematics. Called to the Bar in 1992, he is the Editor of Tax Notes.
Satwaki Chanda

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