Contractors' Questions: How to transfer app's IP to my company?
Contractor’s Question: I want my limited company to own the intellectual property to an iPhone app which I have developed, rather than me owning the IP personally as I do currently. Is it possible to make this transfer of IP rights tax-efficiently?
Expert’s Answer: A written agreement is the best way for you to assign your existing IP rights to the company, assuming of course that any intellectual property in the application isn’t already registered by another party.
Make sure this written agreement assigns all your rights in the app to the company, without exception. This is especially important if investors are on board, as they may want the firm to be enriched by any future development, rather than you benefitting as an individual.
In terms of tax, your transaction will likely attract capital gains tax. However you may not have to pay CGT if the value is within £10,600 - an individual’s allowance for the 2012-13 tax year. But if the value is higher than this threshold, CGT will be levied at 18% or 28%. You will need to check your marginal tax rate to determine if you’ll pay the lower or higher liability.
Either way, thanks to Entrepreneurs’ Relief your CGT rate could be lowered to 10% if you have been in business for 12 months and transfer the whole businesses. Moreover, the gain could be bypassed entirely by roll-over into the company, although you would need to check that you fit the rules for transferring a trade.
Once you have transferred the app and its rights to the company, the value of the IP will typically be capitalised, providing the company with corporation tax relief over time on the cost it incurred of purchasing the IP.
The expert was Jon Sutcliffe, partner at chartered accountancy firm Kingston Smith LLP.