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Finance Bill (Technical Tax Amendments)

Volume 485: debated on Thursday 18 December 2008

I am today announcing the Government’s intention to present to Parliament as part of Finance Bill 2009 two specific tax changes which will ensure that tax rules and in particular anti-avoidance legislation does not apply unfairly in circumstances arising out of the current turmoil in the financial markets and prevent companies suffering unintended or unforeseen tax effects as a result.

The first proposed legislative change will better identify who are the real equity holders in a business, for group tax purposes. This change to the group tax rules will apply to all companies. In particular, when banks and other financial institutions issue certain preference shares in order to boost their Tier 1 capital base in the form approved by financial regulators this change will ensure that their existing group structure, for tax purposes, is not broken. These preference shares are shares that carry a right to a fixed dividend or a dividend at a fixed rate, but in order to satisfy the regulatory requirements the issuer may have the right to pay a lower dividend in certain circumstances. The change will mean that such preference shareholders are no longer treated as equity holders for group tax purposes solely because that regulatory requirement is met. The change will apply retrospectively for accounting periods beginning on or after 1 January 2008 for all existing shares, but companies will have a right to elect for the changes to apply only to new share issues to ensure that no businesses are unfairly affected.

The second proposed legislative change will allow companies that prepare their accounts in foreign currencies to carry any unused tax losses forward in the foreign currency instead of sterling. This change will apply to all companies preparing their accounts in a foreign currency. It will be of particular benefit, at this time, to foreign banks trading in the UK. It will ensure that the losses will offset the same measure of profits in future years without the companies and the Exchequer being exposed to foreign exchange risk on those losses. The change will apply to unused losses carried forward to accounting periods beginning on or after 1 January 2008 but with a right to elect for it to apply only to future losses to ensure that no businesses are unfairly affected by the change.