UK Tax Digest

Welcome to this edition of Weil's UK Tax Digest, featuring a roundup of key tax developments. The past six months have seen significant policy announcements and consultations across a number of areas of UK taxation, draft legislation for the next Finance Bill, and speculation about tax increases in the upcoming Budget to be delivered on November 26.

The most significant tax developments include:

• Carried interest: the government has now published draft legislation on the changes to the taxation of carried interest, after conceding some aspects of its previous proposals. We summarised the concessions made in the recent policy update, which include removal of the minimum co-investment condition and minimum holding period requirements, but retain – subject to statutory safeguards – the potential tax charge on non-UK resident individuals who provide services in the UK. The latest changes and draft legislation follow a period of extensive consultation with industry. The draft legislation, which remains open for consultation until 15 September 2025, will form part of Finance Bill 2025-26 and the revised carried interest regime will take effect from 6 April 2026.
• Stamp duty: HMRC published the outcome of their stamp taxes on shares modernisation consultation. Consistent with HMRC's original proposals, stamp duty and SDRT are to be replaced by a single, self-assessed, mandatory tax, with a new online portal to be launched for payment of stamp duty on "paper" transfers. Despite opposition, the government plans to proceed with the removal of the current £1,000 de minimis for stamp duty. HMRC are engaging with certain stakeholders, including Weil, in developing the new system. The single tax is expected to be implemented in 2027.
• Pillar 2: the UK, together with other G7 nations, announced that multinational groups with a US parent will be largely exempt from the Pillar 2 (15% global minimum tax) rules. This was agreed in exchange for the US withdrawing its proposal to impose retaliatory taxes on entities connected with "discriminatory foreign countries" (as discussed by our US tax colleagues in a recent alert). It remains to be seen how the proposed "side by side" regime will be implemented, and the extent to which non-G7 nations will support this concession. HMRC have also published revised guidance on reporting and payment of the multinational and domestic top-up taxes, and draft legislation making various adjustments to the taxes, but further announcements are anticipated on the exemption of US parented groups.
• Tax certainty: the government launched a consultation on a new process for providing "advance tax certainty" for major investment projects. Aimed at "the very largest and most innovative investment projects", the proposal is to provide statutory certainty as to tax treatment for entities which are subject to UK corporation tax, either at the time the application is made or as a result of project implementation. The consultation also discusses the possibility of covering VAT, stamp duties and other taxes, and publishing (anonymised) clearances, with the scheme to commence in 2026. Clearance would generally be available for qualifying projects, rather than requiring that the applicant demonstrate any "genuine uncertainty", as in the case of existing non-statutory clearances. We discussed this further in a recent article published in Tax Journal.

Following the series of Court of Appeal decisions on interest deductibility and the "unallowable purpose" rule for loan relationships, covered in some of our previous blog posts, HMRC have now published revised guidance in the Corporate Finance Manual on their view of the effect of the decisions in BlackRock, Kwik-Fit and JTI. Borrowers now have clearer direction on identification of the purpose (and main purpose) of a loan, tax advantages and attribution, although the exercise of discerning a company's "purpose" remains riddled with complexities due to the fact-specific nature of the analysis.

In case you missed it, and in keeping with the theme of complex analyses, we recently published a refresher on the many complexities of the UK tax treatment of guarantees in the Journal of International Banking & Finance Law.

HMRC have been busy on the consultation front, sounding out taxpayers and advisers on a number of other topics ranging from tax administration, reforms to transfer pricing (including further alignment with OECD guidelines and exempting domestic transactions from transfer pricing rules), and merging the UK diverted profits tax into UK corporation tax.

Looking ahead, the Autumn Budget will be handed down by Chancellor Rachel Reeves on November 26. Tax increases are widely anticipated, following the watering down of plans to cut government spending and Labour's election manifesto promise not to increase income tax, national insurance or VAT. Labour had also promised in their manifesto to cap corporation tax at the existing rate of 25%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.