HMRC investigations on “Image rights” of sports & entertainment personalities

A transaction in which “image rights” are alleged to have been transferred to an image rights company (IRC) may take the form of a licensing arrangement, rather than an outright assignment. The grant of a licence may, depending on the circumstances, represent a part disposal of an asset for CGT purposes in relation to the licensor, if the creation of the licence represents an interest or right in or over the asset. Alternatively the grant of a licence may be a deemed disposal.  HMRC commonly consider carefully the nature of the licensing arrangement between the parties in order to identify the nature of the asset over which rights have been granted.

HMRC’s approach is that the correct starting point should be to establish the nature of the asset concerned, if any. Only once an asset that is not image rights has been identified, can the Shares & Assets Valuation (SAV) division consider a valuation.

Where the asset disposed of is goodwill, the valuation is often significantly lower than suggested by the taxpayer or agent. There are two broad reasons for this –

(i) in many instances, most or all of the goodwill is personal to the individual and is not capable of transfer;

(ii) any valuation of a business based on exploiting an image is likely to recognise that in order to conduct the business previously carried out solely by the celebrity, the transferee must acquire the services of the celebrity, which might be expected to cost an amount equivalent to most, if not all, of the transferee’s income.

Example – contractual rights

Celebrities may have contractual rights, for example to make TV or radio programmes, or to write regular newspaper columns. Sportsmen may have contracts to endorse a particular manufacturer’s clothing or equipment.

Contractual rights may be assets for CGT purposes, but it must be considered whether there is any significant value in the rights, if the contract requires the celebrity to carry out stipulated obligations. For example, if a celebrity is contracted to write a weekly column for a national newspaper, if the celebrity transfers that contract to an image rights company (IRC), the net value to the IRC of the right to income from that contract might be greatly reduced (perhaps to nothing) by the value to be placed on the cost to the IRC of obtaining the services of the celebrity to write the column.