Other than reducing alcohol duty on sparkling wine, Rishi Sunak’s 2021 UK Autumn Budget might be remembered more for what it didn’t include than what it did. As with other recent budgets, predictions of increases to Capital Gains Tax rates and tightening the rules on valuable Inheritance Tax reliefs (such as business property relief and agricultural property relief) were notable by their absence. We continue to keep a watching brief on the on-going consultations on these with further announcements due before Christmas 2021, but no seismic changes anticipated.
In the meantime, the previously announced Health and Social Care Levy on income is on course to be introduced in April 2022, as is the new 25 per cent top rate of Corporation Tax for larger businesses from April 2023.
But for now, the Chancellor seems to have set his sights on tax simplification whilst maintaining and enhancing the UK as a popular destination for business and investment post Brexit.
Welcome developments include:
- Research & Development tax relief for businesses will be expanded to include expenditure on IT infrastructure, data and cloud computing. However, the relief will be confined to UK activities only, rather than investment overseas.
- The deadline for reporting and payment of Capital Gains Tax on the sale of UK residential properties is to be extended from 30 days to 60 days. Property investors and Trustees navigating the UK’s Trust Register for the first time will welcome this relaxation and the more generous time allowed for reporting and calculating tax on more complex sales.
- The Annual Investment Allowance for businesses is to be temporarily extended to £1m until April 2023, to encourage capital expenditure and business investment.
- An enhanced regime for Asset Holding Companies (AHCs) and Real Estate Investment Trusts (REITs) is to be introduced. This is expected to allow for full tax exemption on most profits and gains made by qualifying funds, alongside other more technical changes. These will ensure that AHCs and REITs benefit from UK tax transparency, to facilitate the flow of capital and income between assets and investors. In particular, AHCs should be a useful vehicle for non-domiciled remittance basis taxpayers, as certain income and gains will be treated as not having a UK source for remittance tax purposes.
- Business rates are to be reformed, with more regular revaluation intervals and new reliefs for investment in property and green technology. Many hospitality, retail and leisure businesses will also benefit from a temporary 50 per cent reduction in rates. This move could bring greater immediate confidence to owners of retail and hospitality businesses badly affected by the pandemic. Business owners will also be comforted by the absence of any adjustments to the current rules on business property relief for Inheritance Tax.
- The Government is consulting on a new Corporate Re-Domiciliation Regime, to encourage companies to locate to the UK. A simplified regime is being considered to enable companies to move their headquarters to the UK without the need for a full business restructure. This could potentially affect existing corporate tax residence tests which look to a company’s place of incorporation and location of central management and control. It remains to be seen what steps the Government will take and how this will interact with the OECD-led tests used in the UK’s double taxation treaties.
However, some changes may not be so warmly received:
- A new residential property developer tax will be introduced from April 2022. This will take effect as an additional 4 per cent surcharge on residential property development profits exceeding £25m per annum. Commercial property developers, registered housing providers and certain other developers will not be subject to this new tax.
- Overseas companies are now no longer able to surrender losses as group relief to UK companies for Corporation Tax purposes. Non-UK companies with a UK branch or permanent establishment must also now first use UK losses against UK profits before they can be surrendered overseas. This marks an extension to the previous cross-border group relief restrictions, which did not previously apply to EU groups.
Before the Chancellor concluded his speech he commented that his aim was to reduce taxes by the end of the current Parliament. We will have to wait and see how this agenda will play out over the next two and a half years. The UK political scene will continue to dominate fiscal policy.
If you require further information about anything covered in this briefing, please contact Ruth McKeown, James Bromley, Claire Randall, David Gubbay, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, October 2021