1.    Update on the recent emergency Mini-Budget 

The Mini-Budget which took place today, saw a number of tax announcements by the new Chancellor, Kwasi Kwarteng focussing on investment and growth facilitated by a number of tax cuts. These were largely expected, however, the Chancellor’s speech introduced some acceleration of predicted measures and some new ones.

We have provided a high-level summary below. If you would like further help addressing specific background facts and circumstances, please feel free to reach out to one of our experts.

Personal Tax

• The basic rate of income tax will drop by 1% in April 2023 (earlier than previously announced)
• The 45% additional rate of income tax will be removed from April 2023. Whilst we wait for the detail, in principle it could mean that LLP members who joined and paid overlap relief at the 45% rate could get their relief for those profits when they leave the LLP reduced in value. But overall, this is welcomed news for a lot of higher earners. 
• The National Insurance increase of 1.25% will now be reversed from 6 November 2022. The proposed health and social care levy that was going to apply from April 2023 is now abolished. This is welcomed news for employees and employers. 
• From April 2023, personal service companies will once again be responsible for determining their employment status (rather than making the payor responsible which is the case under the IR35 rules currently). 

Corporation Tax

• The planned increase in the Corporation Tax rate from 19% to 25% will be scrapped. It will remain at 19% from 1 April 2023. Portfolio companies struggling in this tough environment will likely welcome this.
• The temporary £1m Annual Investment Allowance will become permanent, allowing enhanced tax relief for expenditure on plant and machinery. 

Housing

• From today, the 0% Stamp Duty Land Tax (SDLT) band will increase from £125,000 to £250,000.
• From today:
• • First-time buyers will only begin to pay SDLT on properties worth over £425,000.
  • The maximum value of a property on which first-time buyers’ relief can be claimed will increase to £625,000. 

Investment Zones

Investment zones will be created to drive growth and unlock housing across the UK. In broad terms the zones will benefit from:

• Specific business rate reliefs which may be up to 100% in some cases
• On qualifying expenditure:
  • 100% enhanced capital allowances on qualifying expenditure
  • 100% structural and building allowance 
• Employer NIC incentives
• Full relief from SDLT in some cases

Seed Enterprise Investment Schemes (SEIS)

• From April 2023, companies will be able to raise up to £250,000 of SEIS investment. Gross asset limits and other rules will be extended.
• To support this, the annual investor limit will be doubled to £200,000. 
• Both of the above are hoped to stimulate investment in new entrepreneurial businesses.

2.    Update on QAHCs – Frequently Asked Questions

Since the QAHC regime came into force on 1 April 2022, we continue to receive a large number of queries from asset managers, particularly in relation to the conditions required to be met to fall within the regime, its benefits compared to other regimes i.e., in the Channel Islands, Ireland and Luxembourg, as well as potential costs related to the implementation and administration of the regime. 

In this article here, we summarise a handful of Frequently Asked Questions that we have been asked as well as our common responses. It is important to note that our responses are provided at a high-level and do not take into specific background facts and circumstances of a fund’s arrangements, which will likely differ in terms of its commercial objectives, asset classes, etc. 

Please note that the QAHC legislation and HMRC guidance are continuously evolving so it is important to keep updated with the developments. As part of the proposed Finance Bill 2023 released in July, there will be further amendments, so that the eligibility conditions that must be met for a company to be a QAHC better align with the intended scope of the regime. There have been many questions raised, particularly in relation to the ‘ownership condition,’ which has already been revised from the previous draft of legislation. 

3.    Potential introduction of an unauthorised contractual scheme fund structure

In its 10 February 2022 “Review of the UK funds regime: a call for input - Summary of responses” which we have summarised here, the Government committed to further work to explore options for the introduction of a new unauthorised contractual scheme fund structure aimed for professional investors, known as the Professional Investor Fund (“PIF”). 

It is anticipated that a PIF will be used for real investment assets and other illiquid assets. It will be an onshore fund, and therefore for UK fund managers, this may be easier to manage rather than an overseas fund (where substance requirements would need to be complied with). 

In terms of the tax treatment, UK investors will pay income tax on income arising from the PIF. UK investors will only be subject to capital gains tax on the sale of PIF units rather than when gains are realised at the portfolio level. No SDLT applies on the transfer of PIF units. 

We have been sent the latest legislative and regulatory proposals for such structure, and we will be responding to the Government’s request for views by the end of September.