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The Budget 2017

The Budget 2018

Our articles on the Budget 2018

Eversheds Sutherland comments on the Chancellor's Budget and what it will mean in practice. Read our articles below.

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A digital services tax is to be introduced from April 2020. Broadly, it will be a 2% tax on the revenues of specific digital business models where their revenues are linked to the participation of UK users. The tax will apply only to search engines, social media platforms and online marketplaces. For more details click here.

The qualifying requirements for Entrepreneurs’ Relief are to be amended. A key change here is that the shareholders will now have to hold shares which, broadly, give them a 5% economic interest in the company. This change is major and will impact disposals from 29 October 2018, irrespective of when the shares were acquired. The proposed changes will cause an unexpected additional tax bill for managers who already hold investments in companies which up until that date qualified for relief. For more details click here.

Following a policy consultation, the government has announced that it intends to reform the corporate intangibles regime by (i) partially reinstating relief for acquired goodwill in the acquisition of businesses with eligible intellectual property from April 2019, and (ii) altering the regime’s “de-grouping charge” rules, in relation to de-groupings occurring on or after 7 November 2018, so that a charge will not arise where de-grouping is the result of a share disposal that qualifies for the Substantial Shareholding Exemption.

From 1 April 2017, use of brought forward losses over £5m was restricted to 50% per year. This provision did not apply to capital losses. The Chancellor has announced that this restriction will be extended also to capital losses from 1 April 2020. A consultation paper was published on 29 October and draft legislation will be published in summer 2019. Meanwhile, a targeted anti-avoidance rule has been brought into effect from Budget Day.

The Budget upholds the government’s commitment to reducing the headline rate of corporation tax from 19% to 17% by 2020. This is welcome news for business and should encourage inward investment in to the UK.

The Finance Bill 2019-20 will introduce legislation to limit the amount of payable tax credit that can be claimed by a company under the R&D SME tax relief to three times the company’s total PAYE and National Insurance contribution payment for the period. The change will have effect for accounting periods beginning on or after 1 April 2020. Any loss that a company cannot surrender for a payable credit will be able to be carried forward and used against future profits. The government will consult on this change.

A targeted market value rule for stamp duty and stamp duty reserve tax will be introduced for listed securities transferred to connected companies where stamp tax group relief is not available and this will have effect from Budget Day. In situations where this rule applies, the transfer will be chargeable based on the higher of (i) the amount or value of the consideration (if any) for the transfer of securities, or (ii) the market value of the securities.

The government also intends to publish a consultation on 7 November 2018 on aligning the Stamp Duty and Stamp Duty Reserve Tax consideration rules and introducing a general connected party market value rule.

Among the announcements in the Chancellor’s recent budget was a welcome increase in the “small trading tax exemption” for charities, which is planned to take effect from April 2019. For further details click here.

Real Estate

As usual, there have been one or two surprises in the self-titled ‘Fiscal Phil’ Budget announcements, and the real estate sector seems to be in the thick of these.

He has introduced a new allowance for the capital cost of construction of offices, retail, industrial and infrastructure assets, at 2% per annum of the build cost (together with a rate reduction on special rate allowances and a temporary increase in first year allowances). For more information click here.

He has also confirmed the application of corporation tax to property income and gains of offshore investors from 2020, with likely significant impact on deductible interest and other structuring of the same. For more details click here. Notably this comes a year later than the extension of CGT to non-residents which comes in in 2019 (update released with the Budget, but more detail expected on 7 November).

The Chancellor has also proposed a business rates relief for small retail occupiers where the rateable value is less than £51,000 – 90% of retailers, but presumably none of the recent high profile examples (Debenhams, House of Fraser, M&S, John Lewis, New Look) will benefit.

He has also significantly increased local authority access to residential development funding by abolishing the HRA debt cap, which otherwise restricted local authorities’ borrowing to develop housing, as well as significant additional funding for the Housing Infrastructure Fund and lending to SME developers. He has made £650m available for a new Future High Streets Fund - but the stated aim seems to be to convert surplus retail space to office / residential use rather than support existing large retailers.

On a wider basis, the proposed introduction of the Digital Services Tax and extensions to the diverted profits tax may act as a brake on further investment by large tech companies, which may in turn impact on real estate commercial / office uptake. Unexpectedly the UK has announced this in advance of the EU, but permitted itself a “get-out” clause, should the EU provisions catch up.

Good news in that SDLT first time buyers relief has been extended to shared ownership up to £500k – retrospectively to the last Budget.

While SDLT rates themselves have remained unchanged for now, as some predicted, the government will publish a consultation in January 2019 on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland (meaning a surcharge of up to 4% for non-resident individuals who already own a home and non-resident companies).

While some predicted a decrease in the residential property CGT rate (to encourage private landlords to sell), there are instead to be some changes to the operation of the principal private residence exemption, reducing its benefit in particular for those who let out their property.

The government has published a technical note updating the position on the proposed extension of CGT to direct and indirect holdings of UK real estate by non-residents from 6 April 2019. For more information click here.


The government has confirmed it will legislate to prevent a version of VAT avoidance (known as ‘offshore looping’) that involves UK insurers setting up associates in non-VAT territories and using these associates to supply their UK customers. This allows them to reclaim VAT on costs that UK based competitors are unable to reclaim. Although this measure was previously announced in July 2018 along with draft legislation, in the Budget, the government has responded to concerns that those proposals were too broad and accordingly announced that the legislation will be refined and only apply to insurance intermediary supplies and VAT recovery will only be restricted when the principal supply is made to consumers located within the UK. The expected implementation date is 1 March 2019.

As anticipated, the eligibility to participate in VAT Groups will extend to specific non-corporate entities (e.g. potentially partnerships). Further amendments to the definition of ‘bought in services’ will be made to ensure UK VAT is accounted for. Further clarity will be added to HMRC’s protection of revenue powers and the treatment of UK fixed establishments.

VAT legislation will be amended to ensure the continuity of VAT exempt treatment for English higher education providers by enabling certain eligible bodies to exempt supplies of education in accordance with the Higher Education and Research Act.


It was confirmed that the government will legislate to increase the assessment time limit for offshore tax non-compliance to 12 years for income tax, capital gains tax and inheritance tax. Where there is deliberate behaviour the time limit will remain at 20 years.

It has been announced that, from 6 April 2020, when a business enters insolvency, taxes that it has collected and holds on behalf of other taxpayers (VAT, PAYE income tax, employee National Insurance contributions and Construction Industry Scheme deductions) will go to fund public services rather than be distributed to other creditors. The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer National Insurance contributions.

The government will introduce legislation in Finance Bill 2019/20 to allow HMRC to make directors and other persons involved in tax avoidance, evasion or phoenixism jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.

Generally a non-resident company is liable to UK corporation tax only if it has a permanent establishment in the UK. Certain preparatory and/or auxiliary activities are classed as exempt and do not create a permanent establishment. It has been announced that the Finance Bill 2018/19 will introduce measures to ensure that foreign businesses operating in the UK cannot take advantage of these exemptions by splitting up their activities between different locations and related companies.

As previously announced, the government will legislate in Finance Bill 2018-19 to introduce targeted legislation that aims to prevent UK businesses from avoiding UK tax by arranging for their UK-taxable business profits to accrue to entities resident in territories where significantly lower tax is paid than in the UK. The taxable UK profits will be increased to the actual, commercial level.

As expected, it was confirmed that, from 6 April 2019, a UK income tax charge will be applied to amounts received in a low tax jurisdiction in respect of intangible property, to the extent that those amounts are referable to the sale of goods or services in the UK. There are various limitations proposed to be included in this rule. The measure will generally apply to entities that are located in jurisdictions with whom the UK does not have a full double tax treaty (i.e. one containing a non-discrimination provision) and to protect against non-payment by a non-UK resident entity, joint and several provisions will be introduced to enable collection of the debt from entities within the same control group during the relevant tax year. A targeted anti-abuse and anti-forestalling rule will be introduced with effect from 29 October 2018.

The government will publish an updated offshore tax compliance strategy. This is intended to build on the substantial progress that the government considers that the UK has made in tackling offshore tax evasion and non-compliance since its previous strategy was published in 2014.


The Cryptoassets Taskforce, consisting of HM Treasury, FCA and Bank of England issued their final report on Budget Day. For more information click here.

For further information please contact Deepesh Upadhyay.


As anticipated, the Chancellor confirmed in the Budget that the way IR35 (off-payroll tax rules) is operated and enforced in the public sector will be extended to the private sector. However, this change is being delayed until 6 April 2020 and will only apply to large and medium-sized businesses. For more information click here.

The proposal to introduce employer’s NICs on termination payments over £30,000 has been postponed for another year and will not become law until April 2020.

Though not a policy change, the Budget papers have announced that the government will be given powers to ensure that UK tax law remains as it is following Brexit, in particular if there is no deal with the EU. The changes will be set out in the Finance Bill 2018-19 and will come into effect with Royal Assent. Broadly, the changes will pick up necessary drafting changes and give appropriate enabling powers.

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