Finance (No. 2) Bill 2016 – other measures | KPMG | UK

Finance (No. 2) Bill 2016 – other measures

Finance (No. 2) Bill 2016 – other measures

Some other items of note from this year’s Finance Bill.


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In addition to the key measures in the previous article, the Finance (No. 2) Bill 2016 contained further information on some other tax measures. Here, we highlight updates on domicile, loans to participators, loan relationships and derivative contracts, and stamp duty land tax (SDLT) seeding relief.


Major changes to the taxation of non-doms were announced in the Summer Budget 2015. On 9 December 2015 draft legislation was published on the deemed domicile rules relating to inheritance tax and on 2 February 2016 draft legislation was published relating to income tax and capital gains tax (CGT). While HMRC had advised that this legislation would be included in Finance (No 2) Bill 2016, the legislation published on 24 March 2016 does not contain the anticipated clauses. The Overview of tax legislation and rates (OOTLAR) published on Budget Day states that “The Government will legislate all non-dom reforms in Finance Bill 2017”.

Whilst this means a delay until we have finality on the draft provisions, it is to be welcomed that all of the legislation relating to the changes to the taxation of domicile will ultimately be included in one Finance Act, rather than being spread across Finance Acts 2016 and 2017 as had been anticipated.

Loans to participators

As mentioned in the 2016 Budget, Clause 46 Finance (No. 2) Bill 2016 increases the tax rate payable under s455 CTA 2010 when a close company makes a loan or advance to a participator, or certain other entities, from 25 percent to the dividend upper rate (currently 32.5 percent). This change applies to loans or advances made on or after 6 April 2016. A similar change has been made to the tax rate applicable to the conferral of benefits under s464A CTA 2010. As a result of this change, there is now a direct link between the dividend upper rate and the tax rate for loans to participators.

Loan relationships and derivative contracts
Finance (No. 2) Bill 2016 includes changes to the rules on the taxation of loan relationships and derivative contracts. The measures are largely unchanged from the draft Finance Bill issued in December. The legislation applies from 1 April 2016 whatever a company’s year-end. The changes are:

  • A new rule which disallows debits arising from the accounting for interest free and other non-market loans in certain circumstances;
  • A new rule which ensures that certain credits from loan relationships and derivative contracts are not taxed to the extent that debits have previously been restricted as a result of the application of the transfer pricing rules; and
  • Amendments to the rules on the taxation of exchange gains and losses on non-arm’s length loan relationships and derivative contracts. The intention is that exchange gains and losses should not be excluded where there is a matching loan or derivative. The legislation has been updated since the draft Finance Bill to ensure that the rules work as intended where a guarantor is deemed to be party to an element of the borrowing.

SDLT seeding relief

Following consultation, technical changes have been made to the provisions introducing an SDLT seeding relief for transfers of real property to property authorised investment funds (PAIFs) and co-ownership authorised contractual schemes (Co-ACSs). More changes had been hoped for, particularly by life companies wishing to transition into Co-ACSs for reasons including client demand, cost reduction and regulatory change. The changes include:

  • the trigger for a withdrawal of the relief will be based on the extent to which there is a disposal of an interest in the underlying property rather than the number of units;
  • the trigger will be a group test, so where two or more group companies have seeded a fund, the overall unit-holding of the group (rather than the specific seed investor) will be taken into account in determining whether the trigger applies; and
  • seed investors can elect to end the period (the ‘seeding period’) within which the seeding conditions must be met and, consequently, accelerate the start of the period (the ‘control period’) within which meeting the seeding conditions must endure.

For further information please contact:

Kayleigh Havard

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