HMRC clarifies the UK tax treatment of Image Rights

Recently, HMRC released updated guidance which clarifies the UK’s position on the existence of image rights, their assignment and the ongoing taxation of income derived from them. HMRC maintains that the concept of “image rights” does not exist in UK legislation and therefore tax treatment in relation to them is uncertain. 

HMRC considers that the transfer of image rights to an entity conducting the trade of image rights exploitation is a transfer of a bundle of intellectual property rights. This bundle largely consists of goodwill which is a personal asset capable of being transferred. However, if the celebrity has not undertaken any specific activity to utilise their “image”, then no trade and consequently no goodwill would exist to assign or transfer.  This will be welcome news to perfume manufacturers promoting personalised scents which help demonstrate the exploitation of the image. 

Conversely, HMRC considers that if no trade is being carried on, then for employed sportspersons the attempted transfer of an image right will be judged as the transfer of contractual rights from the individual’s sports club to the assignee. This is especially important when considering “non-UK” rights, as the absence of evidence of a foreign trade will mean that the contractual right is located in the UK. 

In any case, the guidance highlights two very important points for sportspersons andentertainers. Firstly, the substance behind an “image” is very important.  In order to determine the extent of a right, be it an “image”, “goodwill” or other elements of copyright, a review needs to be undertaken to identify what comprises the image, what has been done to establish that image and what value can be placed upon it.  In our view this should encourage taxpayers to take advantage of the Guernsey Image Rights Registry. This applies to both new and existing images. 

Secondly, the ongoing arrangements need to be carefully considered in order to ensure that an asset has been transferred and can be exploited by the assignee.  HMRC is likely to contend that assignment of the image is a transfer of contractual rights to income unless there is a trade in place which exploits the image.  

We consider the new guidance provided by HMRC to be positive news for the taxpayer.  It demonstrates that HMRC does have a policy to deal with image rights and that, providing the arrangements do have substance and are structured properly, the taxpayer can take comfort in the tax position of those arrangements. 

We encourage anyone with image rights to review their arrangements in light of the new guidance.  At Mark Davies & Associates Ltd we would be happy to assist anyone who feels that their current arrangements may be impacted by this guidance.  Please contact the undersigned if you have any questions.