The annual “Autumn Statement” is the UK’s second most significant policy announcement on fiscal matters, surpassed only by the Spring Budget in importance. The 2014 edition was delivered earlier today, 3rd December, and it contains some important and unexpected announcements. The following is a summary of some of the most significant.

  • Bank-bashing continues. The use of carried-forward tax losses by banks is to be restricted. Only 50% of profits generated on or after 1st April 2015 will be eligible for shelter by the use of losses arising before that date. HM Treasury’s overview suggests that the government consider the use of financial crisis-era losses against future profits, although fully in accordance with the current long-standing rules on carry-forward, “unreasonable”. It seems that taxpayers now need to be careful how they lose money if they expect to get tax relief for doing so. One immediate impact may be on the reporting of deferred tax by affected institutions. There is likely to be an exception for “start-up” losses made in the first five years of a bank’s authorization.
  • The UK is consulting on the introduction of a new anti-hybrid rule, based on the recently agreed recommendations in the OECD’s report on Base Erosion and Profit Shifting (or “BEPS”) Action 2. Unlike the UK’s existing anti-hybrid rule (known as the anti-arbitrage rule), there will be no requirement for there to be a UK tax-avoidance purpose behind an arrangement in order for the rule to apply. Despite the rush to consult, the effective date is not expected to be before 1 st January 2017, with no grandfathering.
  • Also BEPS related, a mysterious and brand new “Diverted Profits Tax” (“DPT”) will be levied at a rate of 25% on multinationals which “use artificial arrangements to divert profits overseas”. Although the DPT is to come into being from 1st April 2015, at the time of writing there is no suggestion as to the detail of this new tax, other than a projected annual fiscal take of around £300m.
  • Rules will be introduced in Finance Act 2015 to re-characterize certain capital gains, arising through fund management entities, which are considered to represent fee income, into income for tax purposes. Apparently, neither performance fees such as carry, nor proceeds of coinvestment, will be affected. It seems that the UK taxation of carry is like the proverbial cat with nine lives.
  • The “cancellation scheme” route frequently used to sidestep UK stamp taxes on a corporate acquisition, which works by utilizing a cancellation and re-issuance of target shares, rather than a transfer of those shares, will be closed down in early 2015 through an amendment to s.641 of the Companies Act 2006. Amongst wider consequences for UK M&A practice, this is a potentially significant change for any company considering an inversion transaction involving a UK company.
  • The charges levied on individuals who are long-term users of the remittance basis for personal tax purposes are to be increased, to a maximum of £90,000 applying to those resident in the UK for at least 17 of the last 20 years. The £50,000 charge applied at 12 out of 14 years will rise to £60,000, but the current £30,000 charge for those who have been resident in the UK for 7 out of 9 years will not be increased. For long-term residents other than oligarchs, the remittance basis may no longer be affordable.
  • There will be a small increase in the rate of the “above the line” R&D tax credit available to corporates from 10% to 11%.
  • Finance Bill 2015 will introduce a new exemption from UK interest withholding tax on “qualifying private placements”. There is currently little detail on this, but it may present an interesting structuring alternative to use of the Quoted Eurobond Exemption.
  • A rule deferring corporation tax deductions for accrued but unpaid interest due to connected lenders in certain territories which have only a limited or no tax treaty with the UK is to be abolished.
  • Residential Stamp Duty Land Tax (“SDLT”) is to be reformed immediately, with a move away from the current “slab” system of rate bands applicable to the whole of the consideration for a sale to a progressive band system, with a new top band rate of 12% on consideration over £1.5m. SDLT on commercial real estate is unaffected.
  • A proposed reform of the employment related securities rules, to introduce a deferral of the charge on acquisition of “non-marketable securities”, will not be pursued.