The UK Budget took place on 16 March 2016.
A brief overview of the key changes relevant to international companies and families is detailed below.
It was announced that the corporation tax rate for financial year starting 1 April 2020 will be reduced to 17%. Based on these legislated plans the UK will then have the lowest corporation tax rate of any of the G20 countries.
UK corporation tax rates, as previously confirmed, will be 19% for each of the financial years 2017, 2018 and 2019.
Withholding Tax on Royalty Payments
Under the present law, by virtue of a combination of UK domestic law and the application of certain double tax treaties, some royalty payments can be made to non-UK recipients with zero withholding tax on those payments. Whether tax is deducted depends on the type of royalty payment and the residence of the recipient.
Measures announced in the Budget introduce new rules which will prevent such arrangements. These will apply where a royalty payment is made to a connected person as part of arrangements made that are intended to obtain a tax advantage by virtue of a provision of a double tax agreement, other than where the benefit is in accordance with the object and purpose of the treaty.
Restriction on the Tax Deductibility of Corporate Interest Payments
From April 2017 there will be a restriction on the deductibility of interest payments made by some companies. As a further implementation of BEPS, there will be a fixed ratio rule that limits the corporation tax deduction for net interest expense to 30% of a group's UK taxable earnings with a de minimis threshold of £2m of net UK interest expense.
Corporation Tax Loss Relief
Two reforms will be introduced from 1 April 2017.
The first will make the current streaming rules more flexible and will mean that losses arising after 1 April 2017 will be able to be carried forward against a wider range of the companies' income streams and those of other group companies.
In addition, from the same date a restriction will be implemented, meaning that companies will only be able to use losses carried forward against up to 50% of their profits above £5m.
Reduction in UK Capital Gains Tax
The Budget announced a reduction in the headline rate of capital gains tax for individuals, relating to many UK investments. Current capital gains tax rates in the UK are 18% for non-higher rate taxpayers and 28% for higher rate taxpayers.
Non-UK tax residents only pay UK capital gains tax on the disposal of residential property.
In the changes to be introduced from April 2016, the rates of 18% and 28% will reduce to 10% and 20% respectively. There is, however an important exclusion to this reduced rate in that disposals of residential property in the UK will continue to be subject to capital gains tax at 28% for both non-UK tax residents and UK tax residents.
Reiteration of the UK Non-Dom Status
It was reiterated that as announced in the Summer Budget of 2015, from April 2017 any non-doms will be deemed UK domiciled for all tax purposes (not just inheritance tax) after they have been UK resident for 15 of the previous 20 tax years.
In addition, anybody born in the UK and who has a UK domicile of origin will revert to this domicile status for tax purposes whenever resident in the UK. Planning opportunities for ceasing to be UK tax resident can be found in our article: IN406: UK Tax Residence – Planning Opportunities, Case Studies and How to Get it Right.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.