The UK Finance Act 2019 received the Royal Assent on 12 February 2019. The Act includes some of the measures announced by the Chancellor in the Autumn Budget in October 2018.

Annual Investment Allowance

The Annual Investment Allowance (AIA) is being increased from GBP 200,000 to GBP 1 million for the next two years. This allows a tax deduction on most types of plant and machinery (excluding cars) purchased for commercial use, up to the maximum limit.

Structures and Buildings Allowance

A Structures and Buildings Allowance (SBA) has been introduced for new construction expenditure on or after 29 October 2018 on non-residential buildings and structures for commercial use. The allowance is 2% per year of the cost of new properties (excluding land) for 50 years.

Intangible property

New provisions applying from 1 April 2019 partly reverse the restriction on tax deductibility for acquisitions of goodwill. Relief will be available for acquisitions of goodwill at a fixed rate of 6.5% of cost each year, but not for related party acquisitions. There will be a cap on the relief amounting to six times the value of other intellectual property assets (e.g. patents, designs and copyright) acquired with the goodwill. This will ensure that no relief is available for goodwill if the relevant transfer did not also include other types of intangible asset.

Income from intangibles held in low tax jurisdictions

New provisions target individuals or entities holding intangible property in low-tax jurisdictions. The Act introduces a charge to UK tax on offshore receipts in relation to intangible property. The charge to UK tax applies if at any time in a tax year, a person is not UK resident and is not resident in a full treaty territory; and UK-derived amounts arise to the person in the tax year. Income tax is to be charged on the UK-derived amounts.

A territory is a “full treaty territory” for this purpose if double taxation arrangements have been made in relation to the territory; and the arrangements contain a non-discrimination provision.

Capital gains tax – non-residents

The Act introduces changes to ensure that non-residents are liable for tax on capital gains on the sale of all immovable UK property. The provisions cover tax on capital gains of non-residents disposing of an interest in UK land (with some exceptions); and non-residents disposing of assets deriving 75% of their value from UK land.

Fragmentation of profits

From 1 April 2019 (6 April 2019 for income tax) rules are introduced to prevent firms fragmenting profits between unrelated entities to avoid tax. The rules target UK residents fragmenting business profits with an overseas person and they operate by the application of tests to determine whether non-arm’s length arrangements have given rise to profits outside the UK at a very low or nil tax rate, that can then accrue to persons with economic links to a UK individual.

The rules apply in a situation where there are arrangements creating a provision between a UK resident entity and an overseas entity as a result of which there is a transfer of value to the overseas entity, relating directly or indirectly to the profits of a UK business; and the value transferred is greater than an arm’s length price from a similar provision between independent persons.

The “enjoyment conditions” must be met in relation to a related individual, in other words the individual is entitled or may become entitled to receive any benefit from the non-individual member’s profit share.

Arrangements are not “profit fragmentation arrangements” if the provision does not result in a tax mismatch (e.g. an increase in tax deductions or a decrease in taxable income) for a tax period of the resident party; or it is not reasonable to conclude that the main purpose, or one of the main purposes, for which the arrangements were entered into was to obtain a tax advantage.

If the conditions apply then reasonable adjustments must be made to the relevant expense, income, profits or losses of the UK business based on an arm’s length provision.