UK launches consultation to improve tax treatment of sovereign investors

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  • UK government launches consultation to modernize and improve its tax treatment of foreign sovereign investors
  • the consultation proposes reforms from April 2024 that would clarify the rules and ensure they offer better value for money for UK taxpayers
  • the government does not expect the proposals to have a significant impact on foreign investment in the UK

The consultation, which runs from July 4 to September 12, will aim to provide greater clarity for investors by bringing the UK tax regime for sovereign investments into the legislation.

To ensure that the UK scheme offers the best value for money to UK taxpayers, the consultation also aims to improve the targeting of the exemptions available to sovereign investors, bringing the UK in line with other major economies such as the United States. United and Germany.

The government does not expect the proposals to have a significant impact on foreign investment in the UK.

Treasury Financial Secretary Lucy Frazer MP said:

“As the world continues to evolve, we are committed to ensuring that the UK keeps pace and remains a competitive and attractive location for overseas investors.

“Our reforms will provide greater clarity on the tax exemptions available to sovereign investors, while ensuring they offer better value for money for UK taxpayers.”

Investors want a safe environment for their long-term investments. The UK provides this – it maintains a strong rule of law, safe regulation and stable market conditions to attract investment and ensure competitiveness on the global stage.

Like many other countries, such as the United States, France and Australia, the United Kingdom grants exemptions from certain taxes, such as corporation tax and income tax, to sovereign investors. , reflecting their unique status as government-backed institutional investors.

These exemptions, however, are not codified in UK law, but are based on case law and common practice. The UK government is therefore seeking to codify its regime into law in order to make the UK system more predictable and safer for foreign sovereign investors.

The reforms will look at what types of income are exempt from tax to ensure that they are targeted more at income related to investments rather than business activities, and income that is more passive in nature. It will also ensure that UK tax exemptions remain as competitive as those in comparable countries.

The proposed changes demonstrate the Government’s wider ambitions for a tax system that is fair, modern, certain and supportive of the UK’s aim to be a leading investment destination for the future.

This includes the Chancellor’s pledge to reform and lower investment taxes in the fall, which the government is now working with industry on how best to do.

The government does not expect the consultation proposals, which would apply from April 2024, to have a negative impact on overall investment. Indeed, these are limited changes that should not undermine overall investment in the UK.

More information

Currently, foreign sovereign persons – including heads of state, monarchs and sovereign wealth funds (SWFs) – are exempt from direct tax on all their UK income. The consultation published today sets out the government’s proposal to legislate and restrict this exemption.

Read the consultation

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