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As part of the UK government's objective to make the country's business tax system the most competitive in the G20, the Chancellor, George Osborne has announced a further cut in the main rate of corporation tax, to 20 percent from April 2015. This means that the main rate of corporation tax and the current small profits rate of 20 percent will be aligned, significantly reducing complexity relating to marginal relief rate calculations. The unification of the small profits rate and the main rate is something that has not been seen in the United Kingdom since 1973. As has become the trend in recent budgets, the reduction in the corporation tax rate is to be counterbalanced by a further increase in the bank levy from January 1, 2014 (to 0.142 percent).
Various other measures were announced at the Budget which will be of interest to the business community, including:
• an increase in ’above the line tax credit’ for research and development to be introduced from April 2013. This will now be 10 percent of qualifying expenditure, instead of the 9.1 percent rate proposed at Budget 2012. The hope is that this will make the UK a more attractive location for ’innovation’ by further reducing the after tax cost of investment. This measure will operate alongside the ’patent box’ rules which come into force next month (which will eventually lead to a 10 percent corporation tax rate on profits from patents);
• the abolition of stamp tax on shares traded on ’growth markets’, such as AIM and the ISDX Growth Market, from April 2014;
• a series of measures aimed at the fund industry, including a consultation on the expansion of the ’white list’ applied in relation to the investment management exemption, clarity on certain tax residence issues and certain pass-through fund structures. From April 2014, the Stamp Duty Reserve Tax (“SDRT”) under Schedule 19 Finance Act 1999, for which fund managers are liable when investors surrender their units in UK unit trust schemes or shares in UK open-ended investment companies will be abolished. It is hoped that these measures will encourage funds to domicile in the UK and allow UK funds to attract more non-UK investors; and
• a series of anti-avoidance measures including rules which will prevent companies entering into arrangements to access unrealised corporation tax losses (including all unclaimed plant and machinery allowances) from unconnected third parties, legislation which will counter certain arrangements which seek to avoid the charge to tax on loans to participators by closely held companies, and retrospective SDLT anti-avoidance legislation, which will target certain sub-sale transactions implemented on or after March 21, 2012.
In addition, the Budget 2013 documents confirmed the introduction of various previously announced anti-avoidance measures, including:
• the General Anti-Abuse Rule or ’GAAR’, which will take effect from the day on which the Finance Bill 2013 receives Royal Assent (expected to be mid-July 2013). The detailed guidance that will run alongside the legislation is expected to be released in April 2013;
• the annual residential property tax on, and the extension of capital gains tax to dwellings valued at more than GBP 2 million held by certain non-natural persons; and
• the wholesale reform of the SDLT ’transfer of rights' (’sub-sale relief’ rules).
Sandy Bhogal, Head of Tax
Mayer Brown International LLP, London
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