George Osborne, Chancellor of the Exchequer, has delivered the 2012 Budget.
On 21 March 2012, George Osborne, Chancellor of the Exchequer, delivered the 2012 Budget. This update sets out the measures and policy decisions which will be of particular interest to PLC Financial Services subscribers.
PLC Financial Services will be publishing a practice note on the financial services implications of the 2012 Budget shortly.
For an overview of the key business tax announcements made in the 2012 Budget, see Legal update, 2012 Budget: key business tax announcements (www.practicallaw.com/9-518-4532). For PLC's coverage of the 2012 Budget, see PLC 2012 Budget, which includes links to tailored practice area updates, as well as comments from leading tax practitioners on what they consider to be the key points of interest for business (see Article, 2012 Budget: A grand day out (www.practicallaw.com/1-518-5597)).Close speedread
On 21 March 2012, George Osborne, Chancellor of the Exchequer, delivered the 2012 Budget.
Separately, a letter from HM Revenue & Customs (HMRC), dated 21 March 2012, has been published on the website of the Investment & Life Assurance Group (ILAG). The letter summarises the measures and announcements in the 2012 Budget, and items covered in the draft Finance Bill, which HMRC believes will be of particular interest and relevance to the financial services sector. It also includes details of other current government work relevant to the financial services sector.
Of particular interest to PLC Financial Services subscribers are the following 2012 Budget measures and policy decisions (some of which have previously been launched or announced by the government):
Bank levy rate. From January 2013, the government will set the full rate of the bank levy at 0.105% (it is currently set at 0.088%).
Bank levy: liabilities of joint ventures. Legislation will be introduced in the Finance Bill 2012 to amend the bank levy legislation to ensure that:
the liabilities of joint ventures are correctly aggregated into a foreign banking group or relevant non-banking group's chargeable equity and liabilities;
double taxation relief can be restricted from the same date that the relief is given; and
the powers allowing the rules for information exchange with foreign authorities are amended, so they work as intended.
Controlled Foreign Company (CFC) rules. As previously announced, the government will introduce new CFC rules to better reflect the way businesses operate in a global economy. They include a finance company partial exemption, that in broad terms will result in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements. The new rules will be effective for CFCs with accounting periods beginning on or after 1 January 2013. For more information, see Legal update, CFC reform: policy update and revised draft legislation: gateway, TAARs, finance companies and offshore funds (www.practicallaw.com/9-518-3207).
Tax treatment of regulatory capital. Legislation will be introduced in the Finance Bill 2012 to bring in a power to determine the tax treatment of regulatory capital instruments issued in accordance with Basel III and CRD IV. Regulations will be made under this power and will take effect from the commencement of the CRD IV provisions. This measure was announced in the 2011 Budget and further consultation was carried out during 2011.
Tax transparent funds. As announced in the 2011 Budget, the government will introduce legislation to make available a UK tax transparent fund vehicle, principally by amending the Financial Services and Markets Act 2000 (FSMA). Legislation will be introduced in the Finance Bill 2012 to facilitate appropriate tax treatment for these funds and the government expects that the new vehicle will be established during summer 2012.
HM Treasury's January 2012 consultation on tax transparent funds closed to responses on 19 March 2012 (see Legal update, HM Treasury consults on contractual schemes for collective investment: financial services implications (www.practicallaw.com/9-517-1860)).
Solvency II and taxation of life insurance companies and friendly societies. As announced in the 2011 Budget, legislation will be introduced to establish a new regime for the taxation of life insurance companies and friendly societies. This will come into effect on 1 January 2013 and it represents a broad and fundamental revision of both the basis on which life insurance companies' taxable profits are computed and the detailed rules by which those profits are taxed.
The legislation will include:
a targeted anti-avoidance rule to address cases where companies enter into arrangements with a main purpose of securing a tax advantage in connection with the transitional rules; and
a statutory advance clearance procedure, which will enable companies to undertake genuinely commercial transactions with the assurance that the anti-avoidance rule will not be applied.
Detailed consultation on the anti-avoidance rule has taken place and the rule has been significantly modified in the light of representations made by the life insurance industry.
In view of the significant risk to tax revenue arising from the transition to the new regime, the anti-avoidance rule will have effect from 21 March 2012, and may be triggered by transactions and arrangements entered into from that date. Although the statutory clearance procedure will only take effect once the Finance Bill 2012 receives Royal Assent and becomes law, HMRC's Large Business Service is, in the interim, prepared to discuss proposed transactions, and to give a view on them, as part of its ongoing engagement with customers.
HMRC has published a statement (dated 21 March 2012) that reproduces the text of the legislation setting out the anti-avoidance rule and the clearance procedure.
General insurance claims equalisation reserves (CERs). As announced in December 2011 (see Legal update, Draft Finance Bill 2012 legislation: key financial services measures (www.practicallaw.com/3-515-6971)), the government will repeal the current legislation for the tax treatment of CERs from the date on which the Solvency II Directive (2009/138/EC) capital requirements come into force (this is currently expected to be 1 January 2014). Regulations will be made to cover equivalent reserves maintained by corporate and partnership members of the Society of Lloyd's.
Lloyd's stop-loss insurance. As announced in December 2011, the government will amend the timing of the tax deduction for all premiums payable by corporate members of Lloyd's in respect of member-level stop-loss insurance. The legislation will align the timing of the tax deduction for the premiums with the recognition of the profits to which they relate.
REITs. During 2012, the government will consult on the UK REITs regime, with a specific focus on:
the role REITs can play in supporting the social housing sector; and
whether to change the treatment of income received by a REIT when it invests in another REIT.
The government will also, as announced in the 2011 Budget, legislate for amendments to the REIT regime to support entry to, and investment in, REITs.
Corporate investors in authorised investment funds (AIFs). As announced on 27 February 2012, and with effect from the same date, the government has introduced legislation to address a tax avoidance scheme which seeks to obtain tax benefits for a corporate investor in relation to a distribution made by an AIF where no underlying tax has been suffered. For more information, see Legal update, AIFs anti-avoidance measures introduced with immediate effect (www.practicallaw.com/4-518-2390).
High-risk areas of the tax code: taxation of unauthorised unit trusts. As announced in the 2011 Budget, the government is carrying out work to improve areas of legislation that have been subject to repeated attempts at tax avoidance. As part of this review, in summer 2012, the government will consult on its intended reforms to the taxation of unauthorised unit trusts (the HMRC letter suggests the consultation will be issued around mid-April 2012). The government intends to publish draft legislation in autumn 2012.
Life insurance policies. The government will introduce anti-avoidance legislation in the Finance Bill 2012 to amend the rules for calculating chargeable event gains that may be liable to income tax. These changes will apply to policies issued on or after 21 March 2012, and, in certain cases, to policies issued before this date. The government will also consult on reforming rules in the chargeable event gains regime reflecting a policyholder's period of residence outside the UK, with a view to legislating in the Finance Bill 2013.
US Foreign Account Tax Compliance Act (FATCA). Before summer 2012, with a view to including legislation in the Finance Bill 2013, the government will publish a discussion paper on exchange of information powers to facilitate cooperation with the United States to combat tax evasion in connection with FATCA.
In February 2012, HM Treasury issued a joint statement (with the French, German, Italian and Spanish governments) in relation to the adoption of an intergovernmental approach to implementation of FATCA (see Legal update, HM Treasury joint statement on intergovernmental approach to FATCA implementation (www.practicallaw.com/5-517-9467)).
ISA market improvements. The government will work with industry to improve competitiveness and transparency in the ISA market. In doing so, it will build on the changes made since the OFT's June 2010 report on the cash ISA market, and it is encouraging industry to reduce transfer periods as far as possible. The Money Advice Service will also develop and introduce web-based resources to inform consumers when ISA introductory rates are ending.
On 14 March 2012, the OFT published a review of industry progress on implementing reform initiatives for improving the cash ISA market for customers (see Legal update, OFT cash ISA progress review (www.practicallaw.com/4-518-4488)).
For an overview of the key business tax announcements made in the 2012 Budget, see Legal update, 2012 Budget: key business tax announcements (www.practicallaw.com/9-518-4532).
For PLC's coverage of the 2012 Budget, see PLC 2012 Budget, which includes links to tailored practice area updates on the 2012 Budget, as well as comments from leading tax practitioners on what they consider to be the key points of interest for business (see Article, 2012 Budget: A grand day out (www.practicallaw.com/1-518-5597)).