We have updated this practice note to reflect the Finance Bill 2011 receiving Royal Assent on 19 July 2011 (as the Finance Act 2011).
This practice note provides an overview of the initiatives and measures announced by the government in the Budget of 23 March 2011 that will impact specifically on the UK financial services industry.
These measures have or will be enacted through the Finance Acts of 2011, 2012 and 2013. This note will be updated to reflect relevant sections of the Finance Acts (and preceding Finance Bills).
For links to tailored PLC practice area updates on the 2011 Budget and comments from leading tax practitioners on what they consider to be the key points of interest for business, see PLC's 2011 Budget coverage.
On 23 March 2011, the Chancellor, George Osborne, delivered the 2011 Budget.
This note provides an overview of the new initiatives announced in the 2011 Budget, and measures to further develop existing or proposed initiatives, which will impact specifically on the UK financial services industry. Some of these measures and initiatives were originally announced in the March 2010 Budget (see Legal update, March 2010 Budget and Finance Act 2010: financial services regulatory initiatives) and the June 2010 Budget (see Legal update, June 2010 Budget and Finance (No 2) Act 2010: implications for financial services firms).
For ease of reference, this note classifies by sector and topic the key financial services initiatives and measures announced in chapter 1 and chapter 2 of the 2011 Budget. Within each section of this practice note, the relevant 2011 Budget paragraph references are provided for each initiative referred to, as are links to any relevant 2011 Budget primary sources (including HM Treasury and HMRC's Overview of Tax Legislation and Rates (Overview) and related HMRC Tax Information and Impact Notes (TIINs)) and any relevant PLC Financial Services resources.
HM Treasury has announced that Chancellor George Osborne will deliver the 2012 Budget on Wednesday 21 March 2012.
The government intends to enact these measures announced or referred to in the 2011 Budget through the Finance Acts of 2011, 2012 and 2013. The following sections outline which Finance Act is expected to enact the specific measures.
HM Treasury published the Finance Bill on 31 March 2011. The Bill received Royal Assent on 19 July 2011 as the Finance Act 2011. The Act enacts some of the measures outlined in the 2011 Budget, including in relation to the financial services industry.
This note does not consider the Act or the Bill in any detail. However, for ease of reference, we refer to the relevant sections of the Act where a financial services regulatory measure or initiative announced in the 2011 Budget has been made through the Act.
The 2011 Budget measures specific to the financial services industry that have been introduced in the Act relate to:
Changes to the bank levy rate (see Banks and building societies: bank levy below).
Amendment of the life insurance apportionment rules (see Insurance: life insurance apportionment rules below).
The residence of foreign UCITS funds (see Investment funds: UCITS residence below).
Modernisation of the tax treatment framework for investment trust companies (see Investment funds: modernisation of the tax treatment framework for ITCs below).
Amendments to the Schedule 19 stamp duty reserve tax regime to widen the definition of when an investment is an underlying collective investment scheme (see Investment funds: Schedule 19 stamp duty reserve tax regime amendments below).
Remedying potential adverse tax consequences for some types of debt securities (see Debt securities below).
Changes to the stamp duty land tax regime to reduce the misuse of Alternative Finance reliefs (see Measures to tackle tax avoidance: stamp duty land tax avoidance below).
Introduction of an irrevocable opt-in exemption from corporation tax on the profits for foreign branches of UK companies (see Foreign branches: corporation tax exemption below).
Links to the Act and Bill are provided in 2011 Budget and related primary sources below.
A number of 2011 Budget measures specific to the financial services industry will be introduced in the Finance Bill 2012, which will be published on 29 March 2012. Draft legislation to be included in the Finance Bill 2012 was published by the government on 6 December 2011, relating to the following 2011 Budget measures:
A new life insurance tax regime (see Insurance: Solvency II below).
Taxation of protection life insurance (see Insurance: protection life insurance below).
Retention of the claims equalisation reserves tax relief (see Insurance: general claims equalisation reserves below).
The tax treatment of stop-loss premiums (see Insurance: stop loss and quota share insurance below).
Changes to reduce the barriers to entry and investment in, and reduce the regulatory burden on, real estate investment trusts (see Investment funds: real estate investment trusts below).
Establishment of a tax transparent fund vehicle (see Investment funds: tax transparent fund below).
In addition to the above 2011 Budget measures, the government also announced on 6 December 2011 that it intends to amend the legislation relating to property authorised investment funds (PAIFs) to facilitate conversions to the special tax regime for PAIFs (see Investment funds below).
The government intends to introduce in the Finance Bill 2013 legislation to strengthen existing legislation on unauthorised unit trusts to address tax avoidance in this area, as announced in the 2011 Budget (see Measures to tackle tax avoidance below).
The sections below identify, in relation to sectors and topics, the key initiatives and measures announced in the 2011 Budget that impact specifically on the UK financial services industry.
The table below identifies, in relation to banks and building societies, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
The following measures are also relevant to the banking sector:
New legislation on the introduction of a foreign branches tax exemption (see Foreign branches: corporation tax exemption below).
Comments in the 2011 Budget on the code of practice on taxation for banks (see Measures to tackle tax avoidance below).
Initiative | 2011 Budget reference |
Bank levy The government announced in the 2011 Budget that from 1 January 2012 the rates of the bank levy would be higher than previously announced (to offset the benefit of the further decrease in corporation tax). The increase was introduced in the Finance Bill 2011 to:
Section 73 and Schedule 19 to the Finance Act 2011 introduce the changes to the bank levy highlighted above. In the 2011 Autumn Statement, the government announced that the bank levy would be increased further as outlined in the above bullets from 1 January 2012, to offset the forecast shortfall in receipts for 2011 and future years. On 6 December 2011, the government published draft legislation to be included in the Finance Bill 2012 to:
The government announced its intention to introduce a bank levy in the June 2010 Budget. The bank levy (which applied from 1 January 2011) is a tax based upon the total chargeable equity and liabilities as reported in the relevant balance sheets of affected banks and banking and building society groups at the end of a chargeable period. For more information on the bank levy, see Practice note, Bank levy (www.practicallaw.com/7-503-7740). | 2011 Budget: paragraphs 1.74, 1.90 and 2.87 Overview: paragraphs 1.15, 2.18 HMT Overview draft legislation for Finance Bill 2012, paragraph 2.34 |
New bank capital instruments The government announced in the 2011 Budget that HMRC would informally consult, and set up an industry working group, on the tax treatment of new capital instruments that banks may create as a result of Basel III. Certain features of the bank capital instruments make the current tax treatment uncertain. A discussion paper and working group minutes were published by HMRC in June 2011 (see Legal update, Tax implications of Basel III and CRD IV: joint HMRC and industry working group discussions). The government announced on 6 December 2011 that it was still considering this area. Although draft legislation on this measure was expected to be included in the Finance Bill 2012, it is still awaited. HM Treasury and HMRC indicated that they are still committed to providing legislative certainty on the tax treatment before 1 January 2013. Basel III is a sequence of major reforms to the international prudential framework for capital requirements. For more information about Basel III, see Practice note, Basel III: an overview (www.practicallaw.com/7-504-1959). | 2011 Budget: paragraph 2.88 Overview: paragraph 3.28 |
Remuneration and disclosure The government confirmed in the 2011 Budget that it would consult on a proposal to extend pay disclosure arrangements to all large banks from 2012 onwards. This follows a period of discussion between the government and the UK's biggest banks, known as "Project Merlin", during which agreement was reached on a number of areas including remuneration and disclosure. HM Treasury subsequently published a consultation paper on regulations requiring the largest banks operating in the UK to disclose the remuneration of their eight highest-paid senior officers on 6 December 2011 (see Legal update, HM Treasury consults on bank executive remuneration disclosure requirements (www.practicallaw.com/8-515-4248)). For more information about Project Merlin, see Legal update, Project Merlin: Government and UK's largest banks reach agreement (www.practicallaw.com/4-504-7590). | 2011 Budget: paragraph 1.89 |
The table below identifies, in relation to the insurance sector, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
Also relevant to the insurance sector is new legislation on the introduction of a foreign branches tax exemption (see Foreign branches: corporation tax exemption below).
Initiative | 2011 Budget reference |
Solvency II: life insurance tax regime The government announced in the 2011 Budget the outline of a new life insurance tax regime to take effect from 1 January 2013. The new regime will deal with essential adjustments arising from the Solvency II Directive (2009/138/EC) (Solvency II). The changes are relevant to UK life insurance companies and Friendly Societies, and will also affect overseas life insurance companies operating in the UK through a permanent establishment. Among other things, Solvency II will replace the regulatory returns on which life company taxation is currently based. It will introduce "significant changes" aimed at creating a simpler and more stable tax basis that is better aligned with the taxation of companies generally. The new regime is outlined in an HMRC technical note on Solvency II and the taxation of insurance companies that were published alongside the 2011 Budget. The government published a consultation document in April 2011 exploring the detailed mechanisms by which the decisions outlined in the technical note will be implemented, followed by a discussion paper in May 2011 (see Legal updates, HMRC consults on new corporate tax regime for life insurance companies and HMRC discussion paper on corporation tax regime for life insurers: transitional issues). A summary of responses to this consultation, which also provides details on how the government intends to proceed on this issue, was published on 6 December 2011. The government published draft legislation to be included in the Finance Bill 2012 to introduce legislation on the new post-Solvency II life insurance tax regime on 6 December 2011. HMRC also published a technical note on transitional arrangements. Detailed rules relating to the transition and Friendly Societies will be included in secondary legislation to be published in draft for consultation in the early part of 2012. For a high-level introduction to the regime under Solvency II, see Practice note, An introduction to Solvency II (www.practicallaw.com/4-503-8166). | 2011 Budget: paragraph 2.93 Overview: paragraph 3.30 HMRC technical note: Solvency II and the Taxation of Insurance Companies (published March 2011) Draft Finance Bill 2011 TIIN on Solvency II and the taxation of life insurance companies HMT Overview draft legislation for Finance Bill 2012, paragraph 2.36 |
Protection life insurance The government intends to legislate to change the way in which life insurance companies are taxed on certain long-term business with effect from 1 January 2013, as part of the Solvency II implementation measures. The "income minus expenses (I-E)" calculation which is used to calculate the profits on those life insurance policies which primarily provide protection in the event of death will not apply to policies written after 31 December 2012. Instead, life insurance companies will be taxed on a trading profits basis. This will align life protection business with the tax treatment of other trading entities. This measure is outlined in an HMRC technical note on Solvency II and the taxation of insurance companies. The government consulted on this measure in its April 2011 consultation paper on a new corporate tax regime for life insurance companies (see above box). Among other things, the consultation explored how protection business should be defined, and covered the need for special provisions around commencement of the new rules, including situations where changes are made after commencement to policies which were in force beforehand. A summary of responses to the consultation was published on 6 December 2011, which explains how the government intends to proceed on the treatment of protection business. The draft legislation to be included in the Finance Bill 2012 (published by the government on 6 December) will introduce legislation to effect these measures. | 2011 Budget: paragraph 2.92 Overview: paragraph 3.13 Life Insurance Companies: A New Corporate Tax Regime: Summary of Responses: see paragraphs 4.24 to 4.33 |
General claims equalisation reserves General insurers and Lloyd's insurers currently receive a tax deduction for amounts based on regulatory claims equalisation reserves (CERs). CERs apply to certain lines of business recognised as being the most susceptible to volatile results. The relief is dependent on the regulatory requirement to maintain CERs. Under Solvency II, that requirement will be withdrawn, resulting in the release of built-up reserves to tax. Following an informal consultation announced in the 2011 Budget, legislation will be introduced to repeal the legislation that provides for tax deductions for claims equalisation reserves maintained by general insurance companies under FSA rules and equivalent reserves maintained by corporate and partnership members of Lloyd's. The repeal will have effect for accounting periods ending on or after the date that the Solvency II capital requirements come into force, currently expected to be 1 January 2014. Transitional rules will provide for any built-up reserves to be released in equal instalments over a 6 year period. The repeal and transitional rules for general insurers will be introduced through primary legislation. The government intends to consult on draft regulations for the transitional period in respect of Lloyd's in February 2012. | 2011 Budget: paragraph 2.94 Overview: paragraph 3.32 HMT Overview draft legislation for Finance Bill 2012, paragraph 2.37 Finance Bill 2012: draft clauses and explanatory notes Draft Finance Bill 2012 TIIN on General Insurance: Claims Equalisation Reserves |
Stop loss and quota share insurance HMRC guidance on stop-loss premiums in the Lloyd's manual will be amended following the 2011 Budget to reflect HMRC's revised view on the timing of any tax deduction for stop-loss premiums (which is that they are admissible in accordance with the normal rules concerning trading profits). The government believes that this treatment is not appropriate in certain circumstances and will introduce legislation in the Finance Bill 2012 to ensure that expenses are deducted at the same time as the profits to which they relate. Following an informal consultation announced in the 2011 Budget, legislation will be introduced to ensure that all premiums payable by corporate members of Lloyd's in respect of member-level stop-loss reinsurance taken out on or after 6 December 2011 will be deducted for tax purposes at the same time as the recognition of the profits to which they relate. HMRC published a technical note on this measure on 6 December 2011. | 2011 Budget: paragraph 2.95 Overview: paragraph 3.34 HMT Overview draft legislation for Finance Bill 2012, paragraph 2.38 Finance Bill 2012: draft clauses and explanatory notes Draft Finance Bill 2011 TIIN on Lloyd's: Stop-Loss Insurance |
Life insurance apportionment rules The government announced that it would introduce legislation in the Finance Bill 2011 to amend the existing apportionment rules to modify their operation in certain circumstances. The measure, which affects all life insurance companies carrying on more than one category of long-term business, will have effect for periods of account beginning on or after 1 January 2011. HMRC published a TIIN on the measure which explains that the need to modify the legislation (to address an unintended tax change) was identified during an informal consultation with the insurance industry. Section 56 of the Finance Act 2011 introduces the changes to the life insurance apportionment rules highlighted above. | 2011 Budget paragraph 2.99 Overview: |
The table below identifies, in relation to the investment funds sector, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
For measures relating to Islamic Finance, see Islamic finance below.
Initiative | 2011 Budget reference |
Real estate investment trusts The government announced that shortly after the 2011 Budget it would informally consult with the industry and the representative body on the real estate investment trusts (REITs) legislation. Subject to the responses received, the government said that it intended to make changes to reduce the barriers to entry and investment, and to reduce the regulatory burden for existing and future REITs. The consultation would seek views on:
HM Treasury subsequently published an informal consultation on REITs in April 2011 (see Legal update, REITS informal consultation launched). The government published draft legislation to be included in the Finance Bill 2012 to address barriers to entry and investment in the REIT regime on 6 December 2011. For more information on REITs, see Practice note, UK REITs: questions and answers (www.practicallaw.com/7-201-8033). | 2011 Budget: paragraphs 1.123 and 2.157 Overview: 3.22 HMT Overview draft legislation for Finance Bill 2012, paragraph 2.31 Finance Bill 2012: draft clauses and explanatory notes Draft Finance Bill 2011 TIIN on Improvements to the Real Estate Investment Trust Regime |
UCITS: residence The UCITS Directive (2009/65/EC) (UCITS IV) provides that UCITS funds may be managed by an authorised fund manager resident in a member state other than the home state of the fund. This means that a UCITS fund may be resident in the UK for tax purposes if it has a UK resident fund manager. UCITS IV was implemented in the UK on 1 July 2011. Linked to the implementation, the government announced in the 2011 Budget that legislation would be introduced to treat foreign UCITS funds as not being resident in the UK, in cases where they otherwise might be resident by virtue of having a UK resident fund manager. Section 59 of the Finance Act 2011 amends the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) to change the residence test for certain offshore UCITS funds. For more information about UCITS IV, see Practice note, Hot topics: The UCITS IV Directive (www.practicallaw.com/2-381-9515). | 2011 Budget: paragraph 2.90 Overview: paragraph 1.16 |
Tax transparent fund In the 2011 Budget, the government announced that legislation would be introduced in the Finance Bill 2012 to establish a tax transparent fund (TTF) vehicle. This fund vehicle will be designed to support the competitiveness of the UK fund industry following UCITS IV coming into force. The measures were proposed as a consultation topic in both the March 2010 Budget and the June 2010 Budget. On 6 December 2011, the government published draft legislation to be included in the Finance Bill 2012 that will introduce measures to facilitate the appropriate tax treatment of the new regulated asset pooling vehicle, the TTF, covering capital gains and stamp taxes on shares. The new regulated vehicle is expected to be in place by summer 2012. As most of the legislation required is regulatory and not tax, the government announced in May 2011 that this would be taken forward as a regulatory consultation. A regulatory consultation document will be published before the end of 2011 or in early 2012. The tax measures in the Finance Bill 2012 will provide the necessary powers to provide appropriate tax treatment for investors in TTFs in line with the policy objective. The measures will affect investors in the new TTF pooled investment vehicle, who are expected to be UK authorised unit trusts, open ended investment companies (OEICs), pension funds and insurance companies and similar European investors. | 2011 Budget: paragraph 2.89 Overview: paragraph 3.29 HMT Overview draft legislation for Finance Bill 2012, paragraph 2.32 |
Offshore funds amendments The government confirmed in the 2011 Budget that it was consulting on amendments to the Offshore Funds (Tax) Regulations 2009 (SI 2009/3001). The Offshore Funds (Tax) (Amendment) Regulations 2011 (SI 2011/1211) were made on 4 May 2011 and came into force on 27 May 2011 (see Legal update, Offshore Funds (Tax) (Amendment) Regulations 2011 made). For more information about the taxation of offshore funds, see Practice note, Offshore funds: tax (www.practicallaw.com/8-382-5472). | 2011 Budget: paragraphs 2.90 and 2.91 Overview: paragraph 2.30 |
Modernisation of the tax framework for investment trust companies The government confirmed that the Finance Bill 2011 would contain legislation providing for a new definition of an investment trust company (ITC) and for powers to make regulations setting out the rules of the new tax framework. This followed the launch of a consultation on the modernisation of the tax rules for ITCs on 27 July 2010 (see Legal update, Consultation on tax treatment of investment trusts (www.practicallaw.com/9-502-9094)) and the release for comment of draft legislation on 9 December 2010 (see Legal update, Investment trusts modernisation: draft Finance Bill 2011 clauses and response to consultation (www.practicallaw.com/3-504-2531)). The aim was to provide greater certainty for ITCs and their investors and to ensure that the rules are capable of facilitating modern investment practice and a wider range of investment strategies. No further comments were received on, and only minor technical changes have been made to, the consultation draft. HMRC published draft regulations on investment trusts, providing for an approval process, the conditions to be met while approved and a "white list" of transactions not treated as trading, on 25 May 2011 (see Legal update, Investment trusts modernisation: draft regulations published). For more information about the tax issues that arise in respect of ITCs, see Practice note, Investment trusts: tax (www.practicallaw.com/7-382-5458). Sections 49 and 50 of the Finance Act 2011 introduce the changes relating to investment trust companies highlighted above. | 2011 Budget: paragraph 2.98 Overview: paragraph 2.15 |
Schedule 19 SDRT regime amendments The government confirmed in the 2011 Budget that it would legislate in the Finance Bill 2011 to widen the existing definition of when an investment in an underlying collective investment scheme (CIS) is classed as an "exempt instrument" under the stamp duty reserve tax (SDRT) in Schedule 19 to the Finance Act 1999. Interests held by fund managers in underlying schemes will qualify as exempt investments if the following conditions are met:
For more information, see Legal update, SDRT: collective investment schemes: draft Finance Bill 2011 (www.practicallaw.com/9-504-2533). Section 84 of the Finance Act 2011 introduces the changes relating to the SDRT regime highlighted above. | 2011 Budget: paragraph 2.100 Overview: paragraph 2.4 TIIN: Reform of stamp duty reserve tax on collective investment schemes |
Property authorised investment funds HMRC published a statement on 6 December 2011 on property authorised investment funds (PAIFs). The government intends to amend the legislation relating to PAIFs to facilitate conversions to the special tax regime for PAIFs. These amendments will allow investors to exchange their units in a dedicated PAIF feeder fund for units in the PAIF and vice–versa, in specified circumstances, without incurring a charge to tax on capital gains at the time of the exchange. The government intends to finalise the statutory instrument making the changes in late spring or early summer 2012 following an informal consultation. |
The table below identifies, in relation to debt securities, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
Initiative | 2011 Budget reference |
Debt securities The government confirmed in the Budget 2011 that the Finance Bill 2011 would include legislation to remedy the potential adverse tax consequences for some types of debt securities that resulted from amendments made to article 77 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO) by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 (SI 2010/86) (2010 Order) (see Legal update, Securitisation: adverse effects of amended "specified investment" definition to be remedied). The 2010 Order had the inadvertent consequences that certain debt securities may be unable to qualify for the loan capital exemption from stamp duty and that issuers of such securities might have been excluded from the UK securitisation tax regime. The Finance Bill 2011 provided that, for tax purposes, the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2011 (SI 2011/133), which took effect from 16 February 2011, will apply as if it had been made on 24 February 2010 (that is, when the issue first arose). Taxpayers will be able to opt out of this remedying Order. For more information about the 2011 Order, see Legal update, Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2011 published). Section 89 of the Finance Act 2011 introduces the changes relating to the tax regime for some types of debt securities highlighted above. | 2011 Budget: paragraph 2.97 Overview: paragraph 1.17 |
Covered bonds The government announced in the 2011 Budget that it would consult jointly with the FSA on a review of the UK's regulatory framework for covered bonds. HM Treasury and FSA subsequently consulted on a review of the UK's regulatory framework for covered bonds in April 2011. In June 2011, HM Treasury consulted on measures to enhance the attractiveness of UK covered bonds to investors, making it easier for banks and building societies to raise funding to lend to households and businesses. A summary of responses received to that consultation was published in November 2011. For more information about covered bonds issued in the UK, including this consultation, the responses and the Regulated Covered Bonds (Amendment) Regulations 2011 (SI 2011/2859) see Practice note, Covered bonds. | 2011 Budget: paragraph 2.207 |
The table below identifies, in relation to the UK's anti-money laundering (AML) regime, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
Initiative | 2011 Budget reference |
Money Laundering Regulations 2007 The government announced in the 2011 Budget that it would consult on detailed proposals to amend the Money Laundering Regulations 2007 (SI 2007/2157) (2007 Regulations). In a joint HM Treasury and BIS "Plan for Growth" document, published alongside the 2011 Budget, the government explained that the consultation would focus on abolishing over 24 regulatory offences under the 2007 Regulations and introduce an exemption for businesses with very low turnovers. It is anticipated that this will reduce compliance burdens for businesses. For more information about the review of the 2007 Regulations, see Practice note, HM Treasury's post-implementation review of the Money Laundering Regulations 2007. | HM Treasury and Department for Business, Innovation and Skills (BIS): Plan for Growth: paragraphs 2.246 and 2.253 |
The table below identifies measures announced in the 2011 Budget relating to the taxation of foreign branches of UK companies.
Initiative | 2011 Budget reference |
Foreign branches tax exemption The government announced in the 2011 Budget that it would introduce legislation in the Finance Bill 2011 to provide an irrevocable opt-in exemption from corporation tax on the profits of foreign branches of UK companies. This measure is expected to be of particular benefit to the banking sector (which currently makes most use of branches, rather than a subsidiary structure, for regulatory purposes) and the general insurance and life insurance sectors, where it is expected that use will increase due to EU regulatory changes (for more information on the changes, see Practice note, An introduction to Solvency II (www.practicallaw.com/4-503-8166)). An HMRC TIIN set out the background to this measure and summarises the proposed changes. The measure will preclude the need for credit relief to prevent double taxation of affected businesses. It is expected to achieve greater consistency of tax treatment between foreign branches and subsidiaries of UK companies, and help create a level playing field between different business operating models. The new regime will be available for accounting periods beginning on or after the date Finance Bill 2011 receives Royal Assent. For more information on this measure, see Practice note, 2011 Budget: key business tax announcements: Foreign branch tax exemption (www.practicallaw.com/6-505-3575). Section 48 and Schedule 13 to the Finance Act 2011 introduced the changes relating to the corporation tax exemption on the profits of foreign branches of UK companies highlighted above. Having introduced interim measures in this area in the Finance Act 2011, HM Treasury and HMRC published a consultation document setting out their proposals for full reform of the controlled foreign company (CFC) rules in July 2011 (see Legal update, Full CFC reform: consultation document published (detailed update) (www.practicallaw.com/8-506-7741)). On 6 December 2012, the government confirmed that it intends to replace the existing controlled foreign companies (CFC) regime with new rules, and published draft legislation to be included in the Finance Bill 2012. HM Treasury also published a joint HMRC and HM Treasury response following their July 2011 consultation on the CFC regime. The TIIN sets out the majority of the proposed legislation for CFC reform, and, according to the HM Treasury overview document, the remainder of the legislation will be published in January 2012. | 2011 Budget: paragraphs 1.75 and 2.68 Overview: paragraph 2.13 TIIN: Taxation of foreign branches HMT Overview draft legislation for Finance Bill 2012, paragraph 2.25 Finance Bill 2012: draft clauses and explanatory notes Draft Finance Bill 2011 TIIN on Controlled Foreign Companies Full Reform |
The table below identifies, in relation to the Islamic finance sector, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
The 2011 Budget also introduces legislation to limit the availability of Alternative Finance reliefs where they are being misused to avoid stamp duty land tax (see Measures to tackle tax avoidance below).
Initiative | 2011 Budget reference |
Sharia-compliant variable loan arrangements and derivatives The government announced in the 2011 Budget its intention to make regulations to introduce direct tax rules for Sharia-compliant variable loan arrangements and derivatives in 2011. The government said that it would formally consult on this measure. This consultation is still awaited. For more information about the UK direct tax treatment of Sharia-compliant transactions, see Practice note, Sharia-compliant transactions: tax (www.practicallaw.com/4-201-9755). For more information about the development of the UK as an Islamic finance centre, see Practice note, Islamic finance: Development of the UK as an Islamic finance centre (www.practicallaw.com/7-381-9508). | 2011 Budget: paragraph 2.96 Overview: paragraph 3.33 |
The table below identifies, in relation to measures intended to address tax avoidance, the key financial services regulatory initiatives and measures announced in the 2011 Budget.
Initiative | 2011 Budget reference |
Unauthorised unit trusts The government set out a programme of work to review and strengthen legislation in areas that have been subject to repeated tax avoidance attempts. It announced in the 2011 Budget that legislation governing unauthorised unit trusts was one of the first areas of high risk to be reviewed. A joint HMRC and HM Treasury report on the new anti-avoidance strategy (published on 23 March 2011) explained that the review would aim to ensure that the commercial use of unauthorised unit trusts is not disadvantaged, while looking to minimise the potential for tax avoidance. It would also look at the mechanics of the legislation which imposes burdens on both HMRC and commercial users of unauthorised unit trusts. HMRC launched a consultation on ways of reducing avoidance involving, and simplifying the rules governing, unauthorised unit trusts on 30 June 2011 (see Legal update, Consultation on preventing avoidance involving unauthorised unit trusts). In due course, the government will publish a response document and intends to give an interim progress report at the 2012 Budget. In autumn 2012, there will be a further consultation on any proposed draft legislation with a view to including it in the Finance Bill 2013 at the earliest. | 2011 Budget: paragraph 2.178 Overview: paragraph 3.54 HMRC and HM Treasury joint paper: Tackling tax avoidance: paragraph 2.11 and page 11, table 2A |
Code of practice on taxation for banks The government confirmed in the 20101 Budget that 200 banks had adopted the code of practice on taxation for banks, including the top 15 banks operating in the UK. The 2011 Budget highlighted the code as one of the key measures to address tax avoidance and deter engagement in it. The code was introduced in 2009 and is designed to commit banks to operate within the spirit as well as the letter of the law. For more information on the code, see Legal update, 2009 Pre-Budget Report: key business tax announcements: Code of Practice on Taxation for Banks (www.practicallaw.com/4-500-9404). | 2011 Budget: paragraph 1.91 HMRC and HM Treasury joint paper: Tackling tax avoidance: page 14, box 3A, |
SDLT avoidance The government announced the introduction of legislation in the Finance Bill 2011, to take effect from 24 March 2011, to make it clear that certain schemes to avoid the payment of stamp duty land tax (SDLT) on the purchase of an interest in land do not work. The changes:
Draft legislation was published on 23 March 2011. HMRC has published a TIIN on the change, which explains that there has been no formal consultation on this measure, although confidential discussions have taken place with some external stakeholders. Section 82 and Schedule 21 to the Finance Act 2011 introduce the changes relating to the SDLT tax avoidance measures highlighted above. | 2011 Budget: paragraph 2.177 Overview: paragraph 1.39 TIIN: Preventing avoidance - stamp duty land tax Draft legislation and explanatory note: Preventing avoidance: Stamp Duty Land Tax |
A number of financial services-related industry and consumer bodies have commented on the financial services aspects of the 2011 Budget. Links to press releases and statements they have published are set out below.
Association of British Insurers (ABI): Insurers key in Budget for growth.
Association of Independent Financial Advisers (AIFA): AIFA responds to Budget.
Association of Mortgage Intermediaries (AMI): AMI response to Budget announcement.
British Bankers' Association (BBA): Statement regarding Budget 2011.
Building Societies Association (BSA): BSA comments on Budget 2011.
Confederation of British Industry (CBI): Full CBI reaction to the Budget.
Organisation for Economic Co-operation and Development (OECD): Letter relating to 2011 Budget.
This section includes links to the 2011 Budget, the Chancellor's budget statement and HMRC's budget notes, as well as to the individual chapters of the 2011 Budget (where those chapters outline regulatory initiatives and measures specific to the UK financial services industry).
HM Treasury: Chancellor of the Exchequer's budget statement.
HM Revenue & Customs and HM Treasury: Overview of Tax Legislation and Rates.
This section includes links to the Chancellor's Autumn Statement of 29 November 2011 and details of the Finance Bill 2011 that were announced by the government on 6 December 2011.
Chancellor of the Exchequer's Autumn statement 2011 and speech.
Finance Bill 2012 - draft clauses and explanatory notes (published 6 December 2011).
HMRC webpage on autumn tax updates and draft Finance Bill 2012 clauses.
PLC's 2011 Budget coverage includes links to tailored practice area updates on the 2011 Budget and comments from leading tax practitioners on what they consider to be the key points of interest for business.
For links to all tailored practice area coverage of the 2011 Autumn Statement by a number of PLC services, see the PLC Autumn Statement landing page.