- UK government launches consultation to modernise and improve
its tax-treatment of foreign sovereign investors
- consultation proposes reforms from April 2024 that would
clarify the rules and ensure they deliver better value for money
for UK taxpayers
- the government does not expect the proposals to have a
material impact on foreign investment into the UK
The consultation, which runs from 4 July to 12 September, will
look to provide more clarity to investors by putting the UK
sovereign investment tax regime into statute law.
To ensure the UK’s regime delivers the best value for money for
UK taxpayers, the consultation also looks to improve the
targeting of exemptions that are available to sovereign
investors, bringing the UK into line with other major economies
such as US and Germany.
The government does not expect the proposals to have a material
impact on foreign investment into the UK.
Financial Secretary to the Treasury MP said:
“As the world continues to evolve, we are committed to ensuring
the UK keeps pace and remains a competitive, attractive place for
foreign investors.
“Our reforms will provide more clarity on the tax exemptions on
offer to sovereign investors, while also ensuring they deliver
better value for money for UK taxpayers.”
Investors want a safe environment for their long-term
investments. The UK provides this – it maintains a strong rule of
law, safe regulation and stable market conditions to bring in
investment and ensure competitiveness on the global stage.
As with many other countries, such as the US, France, and
Australia, the UK provides exemptions from some taxes, such as
corporation tax and income tax, to sovereign
investors, reflecting their unique status as
government-backed institutional investors.
These exemptions, however, are not codified into UK law, but are
based on case law and common practice. The UK government is
therefore looking to codify its regime into statute law to make
the UK system more predictable and certain for foreign sovereign
investors.
Reforms will look at what types of income are exempt of tax to
ensure they are more targeted towards income that relates to
investment rather than trading activities, and income that is
more passive in nature. It will also ensure the UK’s tax
exemptions remain as competitive as those of comparable
countries.
The proposed changes demonstrate the government’s wider ambitions
for a tax system that is fair, modern, certain, and supportive of
the UK’s objective to be a world-leading investment destination
for the future.
This includes the Chancellor’s commitment to reform and cut taxes
on investment in the autumn, which the government is currently
working with industry on how best to do.
The government does not expect the proposals in the consultation,
which would apply from April 2024, to negatively impact overall
investment. This is because they are narrow changes that are not
expected to undermine overall investment into the UK.
Further information
Currently, foreign sovereign persons - including heads of state,
monarchs, and sovereign wealth funds (SWFs) – are exempt from
direct taxation on all their UK income. The consultation
published today sets out the government proposal to legislate and
narrow this exemption.
Read the consultation
