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Draft Finance Bill: Further measures

Draft Finance Bill: Further measures

Draft legislation was published for consultation ahead of Budget 2019.

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Image of Sharon Baynham

Director, Tax Policy

KPMG in the UK

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On 11 July 2019, the Government published draft clauses for Finance Bill 2019-20, along with various supporting documents such as responses to recent consultations. To add to what we wrote last week, in today’s Tax Matters Digest we include brief commentary on: the deferral of corporation tax payments on EU group asset transfers; share loss relief and capital gains tax relief on loans to traders; and spreading of transitional adjustments on new lease accounting. Two areas where draft legislation was widely expected were noticeably absent from the draft clauses: reforms to the taxation of trusts and proposals for a new stamp duty land tax (SDLT) surcharge of 1 percent for non-residents buying residential property in England and Northern Ireland. It is currently uncertain when future progress will be made on these two measures.

In last week’s edition of Tax Matters Digest, we provided commentary on the most significant pieces of draft legislation (UK Digital Services Tax; corporate capital loss restriction; off-payroll working rules from April 2020; and the extension of stamp duty anti-avoidance to unlisted shares).

There were various other notable measures included in the draft legislation including:

The deferral of corporation tax payments on EU group asset transfers

Following release of the decision of the First-tier Tribunal (FTT) in Gallaher v HMRC [2019] UKFTT 207 (TC) on 25 March 2019 which found that UK domestic rules concerning the taxation of intra-group transfers to entities outside of the scope of the UK corporation tax (CT) regime were incompatible with EU law, the Government has introduced a measure with immediate effect (i.e. from 11 July 2019) which allows taxpayers to apply to defer payment of up to the amount of CT on profits or gains attributable to affected group asset transfers.

This seeks to address the FTT’s finding that the difference in treatment between a UK to UK transfer, and one to a group company in another EU Member State, was a restriction of the freedom of establishment which could not be justified unless the UK transferor was given the option to pay the additional tax over five years. In the absence of such an option, the transfer should be treated in the same way as a domestic transfer (generally treated as not giving rise to an immediate tax charge on the transferor).

The measure adapts the existing provisions in Sch.3ZB TMA 1970 for the deferred payment of exit charges incurred by a company that migrates from the UK to a relevant European Economic Area (EEA) state, so that an equivalent payment plan can be entered into in relation to CT attributable to group asset transfers within the EU or EEA, and are set out in a new Schedule 3ZC. The practical effect is that CT on group asset transfers during accounting periods ended on or after 10 October 2018 may be the subject of an application for deferred payment.

The FTT’s decision in Gallaher is being appealed to the Upper Tribunal (UT/2019/0089) and is currently awaiting a hearing date.

Share loss relief and capital gains tax relief on loans to traders

Earlier this year, the European Commission issued two reasoned opinions on share loss relief (for income tax and corporation tax) and capital gains tax relief. As a result of these opinions, changes are being made to increase the scope of the two reliefs to ensure they are compatible with the principle of free movement of capital. These changes have effect from 24 January 2019.

The share loss relief measure is designed to benefit individuals and investment companies, by widening the scope where qualifying shares are subsequently disposed of by the shareholder for a loss (s131 ITA 2007 and s68 CTA 2010). From 24 January 2019, the relief applies to newly issued shares in small and medium unlisted trading companies carrying on their business anywhere in the world (and not just the UK). A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.

The capital gains tax relief measure is designed to benefit individuals, by widening the scope for loans to traders that subsequently become irrecoverable (s253 TCGA 1992). From 24 January 2019, the scope of the relief is extended so that it also applies to loans made to individuals, partnerships and companies located outside the UK (not just in the UK).

The spreading of transitional adjustments on new lease accounting

The measure will make small changes to Sch.14 Finance Act 2019, the recent legislation dealing with the tax impact of IFRS 16 adoption. The proposed changes are minor. Indeed they do not affect the impact of the legislation as it was generally understood, however the new wording is designed to be clearer to avoid any possible ambiguity including in the case of early adopters.

If you would like to discuss any of the measures above, please get in touch with your usual contact.

For further information please contact:

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