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On 15 March, the UK’s Chancellor of the Exchequer, Jeremy Hunt, delivered the Spring Budget 2023. The Budget addressed a number of issues of relevance to the financial services industry, including amendments to the Corporate Interest Restriction (CIR), proposed changes in the area of funds taxation, updates in relation to the tax immunity rules for sovereign investors and the VAT treatment of financial services, and changes to the compliance regime for crypto assets.
The Spring Finance Bill 2023 will include legislation to make various technical changes to the CIR rules to “protect Exchequer revenue, remove unfair outcomes and reduce administrative burdens for business”. With certain exceptions, the changes take effect for periods commencing on or after 1 April 2023. The legislation will make a variety of changes covering, among other things, the calculation of tax-EBITDA, the rules for infrastructure companies, grouping rules for investment managers and rules dealing with time limits and other compliance matters.
As announced in 2022, the qualifying asset holding company (QAHC) rules will be amended to better align the operation of the rules with their intended purpose – broadly to act as a tax efficient regime for UK resident asset holding companies in fund structures.
The changes to be introduced in the Spring Finance Bill 2023, which are partly retrospective, will include an anti-fragmentation rule to exclude structures with more than one QAHC where the combined percentage of interests held by non-eligible investors exceeds 30%, an amendment of the definition of “qualifying fund” to include certain entities that would be collective investment schemes if they were not bodies corporate and the introduction of an election which will enable a QAHC to hold listed securities and still meet the investment strategy condition in certain circumstances.
The “genuine diversity of ownership” condition in the QAHC, and some other, rules aims to prevent funds with a small number of pre-determined investors from benefitting from the regimes. This condition will also be amended to make it easier for an entity to meet the condition where it is a part of a wider fund structure which, taken as a whole, would meet the relevant requirements.
Readers will remember that on 4 July 2022, the UK government launched a consultation on the UK’s regime for sovereign immunity from UK direct taxation. The UK government’s proposals were to dramatically curtail the existing immunity from UK tax as it applies to sovereign investors (other than with respect to income tax on passive interest income).
The consultation proposal on sovereign immunity has now been dropped, no further action is to be taken, and sovereign investors (with the benefit of immunity) will continue to benefit from exemption on all direct UK tax.
The government has indicated that, building on the recommendations of an industry working group established to consider the future of VAT and financial services, it will continue to work with stakeholders to consider options to simplify the VAT treatment of financial services. This is likely to be welcomed – the VAT finance exemptions in particular have long been recognised as an area rife with complexity and uncertainty. Separately, the Government has confirmed that it is considering responses to its consultation on the VAT treatment of fund management, and will publish its view in the coming months.
The Government is changing the form of the self-assessment tax return to require capital gains in respect of crypto assets to be separately identified. The changes will take effect for returns for tax year 2024 to 2025.
Should you have any queries on the Spring Budget, please reach out to your usual UK tax contact or one of the above authors.
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