During 2012 a number of significant developments occurred in taxation law within the UK. This report provides a brief description of some of the changes which may be of interest to foreign companies and individuals that conduct or are seeking to conduct further business in or with the UK.

The emphasis has very much been on increasing the UK's competitiveness globally and showing that the UK is 'open for business'.

Corporation Tax

Legislation was introduced in the Finance Act 2012 to reduce:

  • the main rate of corporation tax for profits to 24 per cent for the Financial Year commencing 1 April 2012; and
  • the main rate of corporation tax to 23 per cent for the Financial Year commencing 1 April 2013.
  • It was also announced in the Chancellor's Autumn Statement of 2012 that the main corporation tax rate for the Financial Year commencing 1 April 2014 would be reduced by a further 1% to 21%.

General Anti-Abuse Rule (GAAR)

A consultation document was issued in summer 2012 to consult on new draft legislation based on the illustrative clauses in the Aaronson report; establishment of the GAAR Advisory Panel; and the development of full explanatory guidance. The UK GAAR will become law when the Finance Bill 2013 receives Royal Assent.

Stamp duty land tax (SDLT)

Legislation was introduced in the Finance Act 2012 to charge SDLT at 7 per cent of the chargeable consideration where this was more than £2 million. The measure took effect for transactions where the effective date (normally the date of completion) was on or after 22 March 2012.

The Government also introduced legislation in the Finance Act 2012 to apply a 15 per cent rate of SDLT to residential properties over £2 million purchased by certain non-natural persons. This took effect from 21 March 2012.

Inheritance Tax

The Government announced the intention to increase the inheritance tax-exempt amount that a UK-domiciled individual could transfer to their non-UK domiciled spouse or civil partner. The Government similarly announced the intention to allow individuals who are domiciled outside the UK and who have a UK-domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of inheritance tax. These proposals are subject to a technical consultation.

Gifts between spouses (and civil partners) are normally exempt from inheritance tax (IHT). However, there is a limit of £55,000 on this exemption for gifts made by UK-domiciled spouses to non-UK domiciled spouses. This limit applies to the total of all transfers made by the same transferor to one or more spouses or civil partners during his lifetime and on death.

In the 2012 Budget, the government announced that it would legislate in the Finance Bill 2013 to:

  • Increase the £55,000 limit to the value of the IHT nil rate band (currently £325,000).
  • Allow non-UK domiciled spouses to elect to be treated as deemed domiciled for IHT, so that they can benefit from an unlimited spouse exemption.

Individual Tax Rates

In 2012 it was announced that for 2013-14, the main rates of income tax would be the 20 per cent basic rate, the 40 per cent higher rate and the additional rate would be reduced from 50% in 2012-13 to 45% in 2013-14.

For 2013-14 the personal allowance for those aged under 65 was set at £9,205 and the basic rate limit at £32,245. The Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit for National Insurance contributions were aligned with the point at which the higher rate tax becomes payable (£41,450).

Seed Enterprise Investment Scheme (SEIS)

From April 2012 the Government introduced the new Seed Enterprise Investment Scheme (SEIS), providing income tax relief of 50 per cent for individuals who invest in shares in qualifying seed companies on a maximum annual investment of £100,000. The Government also introduced a capital gains tax holiday: gains realised on the disposal of assets in 2012–13 that are invested through SEIS in the same year would be exempt from capital gains tax.

Patent Box

Legislation was introduced in the Finance Act 2012 to allow companies to elect to apply a 10 per cent corporation tax rate to a proportion of profits attributable to patents and certain other qualifying intellectual property from 1 April 2013. In the first year this proportion will be 60 per cent and increase annually to 100 per cent from April 2017.

Corporation tax reliefs for the creative sector

The Government announced the introduction of corporation tax reliefs for the production of culturally British video games, television animation programmes and high end television productions.

Shale Gas Tax announcement

On 8 October 2012, the Chancellor of the Exchequer, George Osborne, announced that the British Government would be consulting on 'a generous new tax regime for shale so that Britain is not left behind as gas prices tumble on the other side of the Atlantic'.