UK Autumn Budget—More Non-Residents Caught in Tax Net? | KPMG | CA

UK Autumn Budget—More Non-Residents Caught in Tax Net?

UK Autumn Budget—More Non-Residents Caught in Tax Net?

The UK presented its Autumn Budget on November 22, 2017.


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The budget contains few immediate changes and confirms that the UK will proceed with its 2016 budget proposal to reduce the corporate tax rate to 17% as of April 2020. However, the budget also includes measures that could broaden the UK's tax base, including a measure to expand the scope of taxation on non-residents disposing of UK real property (directly and indirectly) and a new withholding tax on digital royalties related to UK sales. The UK intends to implement these measures in 2019.

The UK also issued a position paper on corporate tax and the digital economy and is seeking comments by January 31, 2018.

Taxing non-resident real-estate investors
Beginning in April 2019, the budget proposes to expand existing tax legislation so that non-residents will be taxed on gains made from disposing of all types of UK real estate-including indirect disposals of real estate through "property rich" companies, partnerships and property unit trusts. Generally, these "indirect disposal rules" will apply to non-resident investors who hold a minimum 25% interest in an entity that derives at least 75% or more of its gross asset value from UK real estate. Any interests held by parties related to the non-resident investor at the date of disposal or within the previous five years will be taken into account to determine whether the 25% test is met.

The proposals also include anti-avoidance rules that can deny treaty benefits to non-residents who enter into arrangements or restructuring, on or after November 22, 2017, with an intention to benefit from certain double-tax treaties with the UK that otherwise provide relief from tax on indirect disposals.

The new rules will apply only to gains attributable to changes in a property's fair market value from April 1, 2019 (companies) and April 6, 2019 (other persons). Exemptions may be available for certain investors such as pension funds.

New withholding tax on digital royalties
The budget proposes a new withholding tax on royalty payments made to "low-tax" jurisdictions, beginning in April 2019. Under the proposals, a royalty recipient without a UK taxable presence or UK source may be liable for tax on digital royalties related to UK sales. While this measure only focuses on payments to "low-tax" jurisdictions, the government is also consulting on its underlying policy on tax and the digital economy.

New position paper - More changes to come?

Along with the budget, the UK also issued a position paper on corporate tax and the digital economy; it is seeking comments by January 31, 2018. The OECD is releasing its interim report on the same subject in April 2018, and the UK says it hopes to work with other jurisdictions to find solutions to taxing the digital economy. However, the UK also makes it clear that it will act unilaterally if consensus can't be achieved.

Other measures
The budget also includes proposed measures to:

  • Increase the Research and Development Expenditure Credit to 12% (from 11%) for expenditures incurred on or after January 1, 2018
  • Freeze the indexation allowance on companies' chargeable gains, beginning January 1, 2018
  • Tweak the hybrid and other mismatch rules to ensure the rules operate as intended (draft legislation expected December 1, 2017)
  • Introduce transferable tax history on the disposal of oil fields
  • Improve VAT compliance for online sales
  • Extend assessment time limits for offshore non-compliance to at least 12 years.

For more information, contact your KPMG adviser.

Information is current to November 28, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500


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