Tax Measures in UK Budget 2012

by Morgan Lewis

[author: E.S. Kate Habershon]

The budget includes a number of business-friendly measures, but also targets perceived tax avoidance.

The 2012 UK budget announced 21 March by the UK Chancellor contains a number of tax measures widely regarded as being pro-business, many of which were expected. However, there are also several measures designed to tackle tax avoidance in order to help balance the budget.

International business
Despite the anti-avoidance proposals, the budget contains considerable support for UK businesses. The main rate of corporate tax already had been due to drop from 26% to 25% in April, and the additional reduction of 1% becomes effective from April 2012.

In addition, as was widely known, the Finance Act 2012 (which will implement many of the budget measures) will contain the full reform of the UK's controlled foreign company (CFC) rules. This has been long awaited and should help the UK to be more competitive in the international holding company arena, as the scope of the CFCs (and their income) that are caught should be reduced. The new (draft) rules move from an entity-based test to a "gateway" test that identifies profits artificially diverted from the UK. Exemptions may be available both for entities and for certain income or profit streams, and there are safe harbours to protect genuine commercial businesses. However, the rules are surprisingly complex and are likely to add substantial compliance burdens and costs. They should apply for accounting periods starting on or after 1 January 2013.

Other measures relevant to the corporate tax area include the following.

  • Additional tax reliefs for creative industries, including for the production of culturally British video games and certain television productions.
  • Although not actually a corporate tax, the reduction of the top rate of income tax from 50% to 45% from April 2013 is intended to help businesses. This follows recent pressure from business as the current 50% rate has been perceived as a block to attracting and retaining top talent in the UK.
  • From 1 April 2013, a "patent box" regime will be introduced, allowing companies to pay corporation tax at a reduced rate of 10% on a portion (starting at 60% and increasing to 100% by 2017) of their worldwide profits from exploitation of UK and European Patent Office patents, and certain other intellectual property.
  • An intention to enhance the enterprise management incentive (EMI) scheme (under which employees and officers in certain companies may benefit from tax-advantaged share options) by increasing the maximum limit of shares that may be acquired under EMI options from £120,000 to £250,000 measured at the date of grant—coupled with the extension of entrepreneur's relief (a reduced rate of capital gains tax of 10% on certain sales of shares and businesses) to shares acquired on exercise of an EMI option.

In 2010, the UK government commissioned a team, led by tax barrister Graham Aaronson QC, to investigate the feasibility of a general anti-avoidance rule (GAAR). In November 2011, Graham Aaronson QC's report was released and came down in favour of a GAAR. The government now intends to start a consultation on a general anti-abuse rule in the summer of 2012, with a view to introducing the rule in 2013 to counteract artificial and abusive tax avoidance.

One of the key concerns with a GAAR is the uncertainty that may result for taxpayers. Although the ability to obtain advance tax rulings in the UK is quite limited, the government is clearly aware of this concern. The 21 March announcement indicates the government's intention to produce guidance aimed at offering taxpayers practical assistance to address this uncertainty, but it remains to be seen whether the GAAR will have a significant impact on commercial transactions, on the relationship between taxpayers and HM Revenue & Customs, or on the attractiveness of the UK for international business. It is not yet clear whether any effort will be made to reduce the large number of targeted or specific anti-avoidance rules already in the UK tax code.

Residential property
One target of the budget is the residential property sector, where there has been perceived planning to avoid or minimise stamp duty land tax (SDLT) on properties owned by wealthy individuals. Under a range of proposals, some of which applied from 21 March 2012, others to take effect in 2013, it will become unattractive to hold UK residential property through non-natural persons (such as companies, unit trusts, and some partnerships). The measures include a 15% SDLT charge on transfer of UK residential property worth more than £2 million to non-natural persons and an unusual provision to subject non-UK-resident, non-natural persons to UK capital gains tax on disposals of such UK property. The precise scope of the new rules is not yet known.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.