The Finance Bill 2018-19 will introduce UK tax currently at 20% on income from intangible property held in low-tax jurisdictions to the extent that the income is referable to UK sales. This measure will come into effect from 6 April 2019.

The UK tax will be levied on relevant gross income realised by non-UK resident entities from the ownership, or rights over, relevant intangible property. The charge will apply to the proportion of the foreign entity’s intangible property income that is referable to the sale of goods or services in the UK whether the sales are made via related or unrelated parties.

In the event of non-payment by the non-UK resident entity, connected parties will be secondarily liable for the unpaid UK income tax. This feature may require particular attention in an M&A context going forward.


There will be a number of exemptions to these rules, including:

  • for non-UK residents in a country with which the UK has a tax treaty containing a non-discrimination clause;
  • where the foreign tax on the relevant income is at least 50% of the UK income tax charge that would otherwise arise under this measure;
  • where the value of UK sales is less than £10m in a given tax year; and
  • where the relevant property has not been acquired from related parties and substantially all of the trading activity in relation to the intangible property is taking place in the territory of residence.

In addition, the ability of the UK to impose income tax on non-UK residents remains subject to the terms of the UK’s tax treaties.

The measure will also include a targeted anti-avoidance rule, effective from 29 October 2018, designed to protect against arrangements intended to avoid the charge, including arrangements which involve transferring the ownership of intangible property to another group entity resident in an appropriate treaty jurisdiction.

Please see here for the UK government’s announcement on this issue as a part of the Budget delivered by Philip Hammond, Chancellor of the Exchequer, on 29 October 2018. Further, the government has also published responses to the December 2017 consultation on this new legislation (which can be found here).

For more information in respect of the proposed changes, please see our previous article Consultation: UK Royalties Witholding Taxes on payments between non-UK parties (here). For analysis on the initial measures announced in the Autumn Budget please see our blog post Taxing the Digital Economy: First Steps by the UK (here). For information in respect of the EU developments in this area please see our articles Europe Taxing the Digital Economy: could a turnover tax be on the horizon? (here) and Public Input on Taxing the Digital Economy (here).

Co-authored by Arran Bhatiani.