On 19 March 2012, the government launched the National Loan Guarantee Scheme (NLGS). Under the NLGS, the government will provide up to £20 billion of guarantees to banks on their unsecured debt in return for a fee, making it cheaper for participating banks to borrow. For more information on the NLGS, see Legal update, National Loan Guarantee Scheme launched.
The government has reiterated its previous announcement that it will raise the level of lenders' Enterprise Finance Guarantee portfolios (to which a government guarantee applies) from 13% to 20% for the 2012-13 financial year. This is intended to incentivise lenders to lend more to smaller businesses under the EFG scheme.
Industry reviews of lending: bank and non-bank finance
The government stated that, over the course of this year, it will take forward the recommendations following the review of non-bank lending chaired by Tim Breedon (Breedon Report) including:
Considering how to simplify access to government support for smaller businesses.
Encouraging prompt payment by larger firms.
Supporting industry work to remove barriers to alternative sources of finance.
The government continued with the theme of recent Budgets in targeting tax avoidance schemes. A number of the anti-avoidance measures announced will be of interest to finance lawyers who may be involved in structuring transactions.
General anti-abuse rule
The government has announced that it will consult on the introduction of a general anti-abuse rule (GAAR) in summer 2012, with a view to introducing legislation in the Finance Bill 2013. The government has also announced that it will extend the GAAR to stamp duty land tax (SDLT).
Capital gains tax: disposals of interests in residential property by non-natural persons
As part of a package of measures aimed at tackling tax avoidance in connection with UK residential property, the government will extend the scope of capital gains tax to cover gains arising on disposals by non-resident, non-natural persons of UK residential property and shares or interests in UK residential property.
Legislation will be included in Finance Bill 2013, to take effect from April 2013. The government will consult on the detail of the measure alongside its consultation on the SDLT new penal rate for enveloping high value residential properties (broadly, owning and disposing of property via non-natural persons).
The term "non-natural persons" is not defined for this measure, but the Tax Information and Impact Note on the new SDLT rate for enveloping of high value residential properties indicates that, for the purposes of that measure, the term will include companies, collective investment schemes (including unit trusts), and partnerships in which a non-natural person is a partner (see SDLT: enveloping high value residential property).
The government has announced that it will introduce, with immediate effect, an SDLT rate of 15% for UK residential property acquisitions by "non-natural persons" (whether or not acquired together with others) if the consideration is over £2 million. This new rate will apply to transactions with an effective date after 20 March 2012, but transitional rules will disapply the new rate if the sale contract was completed and signed by all parties to the transaction before 21 March 2012. These measures will be included in the Finance Bill 2012.
A "non-natural person" includes companies, collective investment schemes (including unit trusts) and partnerships in which a non-natural person is a partner. Property developers and corporate trustees "in certain circumstances" will be excluded from the new rate.
High net worth individuals commonly use offshore companies in structures for holding UK property for capital tax, and non-tax, purposes. These sorts of arrangements will need to be reviewed once the detailed rules become available.
The government has issued draft anti-avoidance legislation, for inclusion in Finance Bill 2012, that outlaws a specific SDLT scheme that relies on the application of the SDLT transfer of rights (sub-sale) rules. This legislation is designed to counter a specific avoidance scheme involving the granting of purchase options at completion, so that SDLT is not payable on a property purchase and does not become payable on the option unless exercised (which is not intended).
The draft legislation makes it clear that an "assignment, sub-sale or other transaction" does not include the grant or assignment of an option and, therefore, the transfer of rights provisions will not apply to the scheme transactions. The legislation will apply to options granted or assigned on or after 21 March 2012.
The government has confirmed that draft legislation amending the disclosure of tax avoidance schemes rules that are applicable to stamp duty land tax will be included in the Finance Bill 2012.
The legislation, which permits the removal of the grandfathering rules for certain avoidance schemes using the sub-sale rules, and removes the thresholds for making a disclosure, was first published on 6 December 2011 (see Legal update, Draft Finance Bill 2012 legislation: finance implications: Avoidance schemes). It will be included in the Finance Bill 2012 with no amendments or with only "small, technical" amendments.
The government has confirmed that the Finance Bill 2012 will contain provisions amending the loan relationship connected company impaired debt rules to ensure that they are not circumvented. These provisions were published in draft form on 27 February 2012 (see PLC Tax, Legal update, Retrospective debt buy-back avoidance measures announced).
The Finance Bill 2012 is to include legislation amending the calculation of the disposal value that is brought into account for capital allowance purposes on (deemed) termination of a long funding lease. For the current rules, see Practice note, Equipment leasing: tax: How capital allowances are given. This measure is a reaction to disclosures of tax avoidance schemes and has not previously been announced.
Manufactured overseas dividends and manufactured payments
The government has confirmed that the draft legislation seeking to close down a scheme under which taxpayers sought offset or repayment of income tax of amounts treated as withheld under the manufactured overseas dividend rules, published on 6 December 2011 (see Legal update, Draft Finance Bill 2012 legislation: finance implications: Avoidance schemes: Manufactured overseas dividends), is to be included in the Finance Bill 2012 with no amendments or with only "small, technical" amendments.
The government has confirmed that the asset purchase facility will remain in place for the 2012-13 financial year. Since 2 February 2009, under the asset purchase facility, a wholly owned subsidiary of the Bank of England has been authorised by the government to purchase "high quality private sector assets", including corporate bonds, syndicated loans and certain asset-backed securities created in "viable securitisation structures" from banks, other financial institutions and financial markets. At present, the ceiling on asset purchases is £325 billion.
As previously reported, the government is expected to publish a White Paper on the recommendations of the Independent Commission on Banking (the Vickers Report) in Spring 2012. For information on the aspects of the report and the government's response to the report of interest to finance lawyers, see Legal update, Government responds to ICB's final report and recommendations: finance aspects.
The government has announced that the full rate of the bank levy will increase from 1 January 2013 to:
0.105% for short-term liabilities.
0.025% for long-term equity and liabilities.
This is to offset the benefit to banks of the further cut in corporation tax (see Corporation tax rate reduced) and to ensure the bank levy raises at least £2.5 billion each year.
The government will also amend the bank levy legislation to ensure that the liabilities of joint ventures are correctly aggregated into a foreign banking group or a relevant non-banking group's chargeable equity and liabilities. This was previously announced on 6 December 2011.
For more on the bank levy in the context of tax indemnity and increased cost clauses in facility agreements, see Drafting note, Facility agreement: Tax indemnity: paragraph 2.
The government has announced that it will reduce the main rate of corporation tax an additional 1% from April 2012. Therefore, the rate will fall:
By 2% from 26% to 24% in April 2012.
To 23% in April 2013.
To 22% in April 2014.
Certain companies with ring-fenced profits from oil extraction in the UK (and UK continental shelf) will remain at 30%. The rate applicable to small companies (whose annual profits do not exceed £300,000) will remain at 20%.
Certain convertible loans to be outside the definition of equity
With effect from 21 March 2012, the definition of a normal commercial loan (section 162, Corporation Tax Act 2010) is to be amended. Convertible loan notes that carry the right to repayment or conversion into the shares of a wholly unconnected listed company will be classified as normal commercial loans. Under the legislation as it currently stands, these loans are classified as non-commercial, with the effect that the loan notes count as equity of the issuing company.
According to the impact statement, this change in the legislation will have no impact on individuals or on tax revenues. However, since the definition of normal commercial loan in section 162 of the Corporation Tax Act 2010 is used for determining whether a loan note is a qualifying corporate bond for the purposes of capital gains (section 117, Taxation of Chargeable Gains Act 1992), the amendment, which will be included in the Finance Bill 2012, will require careful drafting if unintended consequences are to be avoided.
The Finance Bill 2012 will include a power for HM Revenue and Customs (HMRC) to determine the tax treatment of regulatory capital instruments issued in accordance with the Basel III and the EU Capital Requirements Directive IV (CRD IV) (see Practice note, Hot topics: CRD IV). The government states that regulations to be made under this power will take effect from the commencement of the CRD IV provisions.
On 8 February 2012, HM Treasury published a joint statement setting out an agreed approach to implementation of the US Foreign Account Tax Compliance Act (FATCA), which aims to combat cross-border tax evasion. The statement was issued jointly with the governments of France, Germany, Italy, Spain and the United States (see Legal update, HM Treasury joint statement on intergovernmental approach to FATCA implementation).
The government has announced that HMRC will consult with affected financial institutions about how to facilitate exchange of information between those institutions and the US Internal Revenue Service, with a view to introducing legislation in the Finance Bill 2013.
Income tax rules on interest and interest-like returns
The government will consult on changes to the income tax rules on the taxation of interest and interest-like returns, and the rules on deducting tax at source from such interest. There will be further opportunities to contribute to the development of policy following the consultation period. Any legislation will be included in Finance Bill 2013.
The government has announced that it will expand the overseas role of UK Export Finance. This will enable it to develop "finance packages" that could help UK exporters secure procurement opportunities identified through UK Trade and Investment's "High Value Opportunities" programme (a support scheme for large companies looking to win overseas contracts valued at £250 million or more).
The government proposes to make up to £150 million available from 2013 to 2014 for large-scale projects in core cities to be financed through tax increment financing (TIF). TIF enables local authorities to borrow against future growth in business rates. Details on a competition to allocate funding will be announced in the coming months.
In 2012-13, the government will introduce a 20 basis points discount on loans from the Public Works Loans Board under the prudential borrowing regime for those principal local authorities providing improved information and transparency on their locally determined long-term borrowing and associated capital spending plans.
The government will invest through UK Green Investments (UKGI) in green infrastructure projects from April 2012, ahead of obtaining state aid approval for the Green Investment Bank (GIB). Non-domestic energy efficiency will be one of the priority sectors for UKGI, which will make up to £100 million available in the next financial year for commercial and industrial energy efficiency projects.