United Kingdom: UK Budget - Sovereign investor tax reform consultation

In brief

In his Spring Budget on 15 March 2023, UK Chancellor, Jeremy Hunt, announced that the Government has decided that there will be no change to the current sovereign immunity exemption from UK direct taxation.


Contents

In more detail

The Government has, since July 2022, been engaged in a consultation stated to modernise and improve the tax treatment of foreign sovereign investors, such as sovereign wealth funds. The Government had proposed:

  • That both the principle of, and conditions underpinning entitlement to, sovereign immunity from UK tax - currently based only on case law and common practice - should be comprehensively set out in legislation.
  • To narrow the scope of tax exemptions that are currently available to sovereign investors in such a way that, as a practical matter, income and gains arising to sovereign investors from UK real estate and income from any UK trading activities would have been brought within the scope of UK tax.

It was confirmed in the UK Budget that the Government has carefully considered the responses to the consultation on sovereign immunity from direct taxation and there will be no change to the current sovereign immunity exemption; it will continue to operate as it does now. The Government welcomed the constructive engagement with sovereign investors during the consultation, and it's good to see that it has taken on board the many thoughtful and comprehensive concerns raised. This is a positive outcome for sovereign investors investing in UK real estate and/ or having a presence in the UK.


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