UK Autumn Budget 2017


On Wednesday 22 November, the UK Chancellor of the Exchequer delivered his Autumn 2017 Budget. The most significant announcement (though absent from the Chancellor’s speech) was that, from April 2019, the UK will be imposing UK tax on gains made by non-residents disposing of UK commercial property whether directly or via property-rich companies or other entities.

The Budget has also confirmed that with effect from April 2020, non-resident companies with UK source income such as rental income from UK real estate will be within the scope of UK corporation tax rather than income tax.

Alongside the Budget, the UK government has produced a position paper on how the digital economy should be taxed and a proposal to impose a withholding tax on royalties derived from UK sales paid to low tax jurisdictions from April 2019. Below is a summary of some the measures announced:


Following the ‘non-resident capital gains tax’ charge that was introduced in 2015 to tax capital gains made on the disposal of UK residential property by non-resident individuals, trustees and certain closely-held companies and narrowly-marketed funds, from April 2019, for the first time:

■ non-residents who sell UK commercial property will become subject to UK tax on capital gains;

■ a greater range of sellers will become subject to UK tax on capital gains on the sale of residential property; and

■ the sale of shares in a ‘property-rich’ company or other entity (broadly, where 75% or more of its gross asset value is comprised of UK commercial or residential property) will be subject to UK tax on capital gains where the seller owns (or has owned in the last five years) 25% or more of the shares. Qualifying institutional investors may be able to obtain an exemption from tax on the sale of the shares.

Those clients who are already exempt from UK tax for reasons that are not related to their tax residence (for example, charities and entities with sovereign immunity) are likely to be outside the scope of the new charges, although this depends on how they are implemented. Properties (and shares in property-rich companies) already held will be ‘re-based’ for tax purposes in April 2019, so that only gains from increases in value after this date will be subject to tax. In other words, historic gains up to April 2019 will not be subject to tax.

Although the government is consulting on the proposals the broad principles set out above are fixed and are highly unlikely to be changed.

The changes are complex and will have a material impact on the way in which investments in UK property are structured.


It has now been confirmed that from April 2020, UK source income which non-resident companies receive (such as rental income from UK property) will be chargeable to corporation tax rather than income tax. This is potentially good news given that rates of corporation tax are lower and affected companies may be able to access group relief. However, presumably the new rules implementing BEPS Action 4 in the UK (ie imposing restrictions on levels of deductions for interest and interest-like costs) which now apply to UK resident companies, will, from April 2020, also non-UK resident companies.


Mirroring the current focus at both the EU and OECD level, the UK government has produced a position paper discussing the issues involved in ensuring that profits of multinational group operating in the digital economy should be taxed in the countries in which they generate value. While recognising that the issues presented by the digital economy should be addressed on a multilateral basis and wishing to inform international debate (specifically the interim report of the OECD Task Force on the Digital Economy due to be presented to G20 leaders next year), the UK government has said that it is ready to take interim action in the absence of sufficient progress on multilateral solutions.

The option favoured by the UK government, should such unilateral action be required, is a tax on the revenues that businesses generate from the provision of digital services to the UK market. The position paper refers to targeting businesses that generate revenues through intermediation and the provision of online advertising (such as search engines and social media platforms) rather than those which sell goods via an online platform, charge customers for the provision of digital content or charge customers for the provision of digital software or services. Plenty of detail remains to be decided such as how the nexus with the UK would be determined (for example where users and consumers are located in different countries), what the rate of tax would be, double tax relief, de minimis thresholds and mitigating provisions for loss-making and early stage businesses. The paper appears to favour direct collection from relevant companies over a withholding tax. That said, it may well be that this tax is never put in place at all.

As a more immediate measure, the UK government plans to introduce an extension to UK withholding tax to cover royalties paid “in connection with sales to UK companies” to no or low-tax jurisdictions regardless of where the payer is located. A consultation on the detail of this measure is promised with a view to it taking effect from April 2019.


The Budget has announced that for any qualifying R&D expenditure incurred on or after 1 January 2018, the R&D expenditure credit which large companies may claim will be increased from 11% to 12%. The credit may then be set against the company’s corporation tax liability.


Where an individual performs services for an end client through a personal service company, the so-called “IR35” rules can apply if the individual would be regarded as an employee had he or she been directly engaged by the end client. Where the rules apply, the IR35 company (rather than the client) has an obligation to account for income tax and national insurance contributions (NICs) in relation to payments received for the individual’s services. The IR35 rules were reformed with effect from 6 April 2017 in relation to engagements in the public sector: essentially, the obligation to consider whether the IR 35 rules apply, and to make withholdings in respect of income tax and NICs, moves from the IR35 company to the person paying the IR35 company where the end client is a public authority.

It was widely considered that the government has been looking into extending these changes to the private sector to address concerns that there is widespread non-compliance and that individuals are not being taxed as employees in circumstances where they really should be. The Budget announcement states that “a possible next step” would be to extend the reforms to the private sector, and accordingly the government is to “carefully consult” on tackling non-compliance, drawing on external research already commissioned and which is expected to be published in 2018.


Following a government-commissioned review which reported earlier this year on modern employment practices and how employment laws need to change to keep pace with modern business models, the government published proposals for a clearer statutory definition of employment status for employment law purposes. The Budget has now announced that the government will also publish a discussion paper on options to make the employment status test for both employment rights and tax clearer.

Should you have any queries on the Autumn Budget, please contact your usual UK tax contact or one of the partners listed below:

Ben Brown, Partner, London –
Mark Burgess, Partner, Birmingham –
Paul Rutherford, Partner, London –
David Thompson, Partner, Manchester –
Richard Woolich, Partner, London –
Neville Wright, Partner, London –