Legal Practice Notes

ARCHIVED: This Practice Note is archived and no longer maintained. Abolition of non-dom regime and introduction of residence-based IHT regime from 6 April 2025 Prior to 6 April 2025, the tests of residence, domicile and deemed domicile determined the scope of an individual’s exposure to UK income tax, capital gains tax ( CGT) and inheritance tax ( IHT). Someone both UK resident and UK domiciled had the strongest ties to the UK and was typically chargeable to income tax, CGT and IHT on their worldwide earnings, gains and holdings. By comparison, a person who was neither UK tax resident nor UK domiciled faced only restricted UK tax liabilities on UK situs assets. UK tax residents who were not UK domiciled could elect for the remittance basis on overseas income and gains, and could also keep non- UK situs assets outside the IHT net. The Finance Act 2025 ( FA...

Capital allowances Capital allowances can provide a deduction for capital spending on acquiring two specified categories of intangible fixed asset ( IFA): patents (addressed in this Practice Note), and know-how (see Practice Note: Know-how allowances) Typically, these reliefs are mainly available to individuals and other unincorporated businesses for new acquisitions. They are not available to anyone carrying on a trade that uses the cash basis. For companies, patent allowances arise only for qualifying capital expenditure where the acquirer is not within the corporate IFA tax regime for the patent concerned. Broadly, a company’s acquisition of a patent from an unconnected party on or after 1 April 2002, or from a connected party on or after 1 July 2020, will generally not result in a patent allowance. For further detail on when a patent falls within the corporate IFA tax regime, see the Practice Notes What is an...

ARCHIVED : This Practice Note has been archived and is not maintained. This Practice Note brings together detailed analysis of the principal milestones in the 2015/16 Budget and Finance Bill process. It also offers commentary on Autumn Statement 2015, the draft Finance Bill 2016, Budget 2016 and Finance Bill 2016. For a detailed explanation of the annual Budget and Finance Bill process, including procedural aspects of enacting a Finance Act, see: Practice Note: The Budget and Finance Bill process. Finance Act 2016 Royal Assent to the Finance Act 2016 was formally granted on 15 September 2016, after its passage through the House of Lords concluded on 13 September 2016. Finance Bill 2016 Finance Bill 2016 (formally, Finance ( No.2) Bill 2015–16) was issued, along with explanatory notes, on Thursday, 24 March 2016. For comprehensive tracking of the Finance Bill measures, including summaries and analysis of the principal tax...

ARCHIVED : This Archived Practice Note sets out the pre‑6 April 2018 tax treatment of payments in lieu of notice. For the tax position applying to such payments where employment ends on or after 6 April 2018, see Practice Note: Taxation of payments in lieu of notice ( PILONs) and post‑employment notice pay ( PENP). Historically, the tax (and National Insurance contributions ( NICs)) treatment of payments in lieu of notice ( PILONs) has been a particularly intricate area. These are payments made in place of the amounts due for an employee’s or a director’s period of notice. Because of the complexity and the resulting uncertainty, the tax treatment of PILONs changed fundamentally from 6 April 2018. In broad terms, from that date all PILONs, whether paid under an implied or express contractual PILON provision, or not, are fully taxable and subject to...

This Practice Note examines the UK tax implications of forming a joint venture structured as a limited liability company ( JVCo), which is a distinct legal person from the joint venture parties. In particular, it covers: reasons a corporate joint venture vehicle is often selected tax charges arising for a joint venture party on transferring assets to a JVCo tax charges that fall on the JVCo when assets are transferred to it further points where the JVCo is, or later becomes, within the group of one joint venture party, and availability of merger relief when subsidiaries are moved into the JVCo For commentary on the tax aspects of running and winding up joint ventures using a JVCo, see Practice Note: Tax implications of operating and terminating a joint venture company. For the purposes of this Practice Note, it is assumed the joint...

This Practice Note: describes what a whole business securitisation is—sometimes referred to as an operating asset securitisation sets out the principal tax considerations that arise on a whole business securitisation because the companies involved sit within a broader corporate group, including that: it is customary for the wider corporate group to provide a tax deed of covenant (a tax covenant) in favour of the securitisation group in general, entities participating in the securitisation should not be members of a VAT group with companies that are outside the securitisation group (see further below) indicates how tax-effective hedging can be achieved where the issuer does not qualify as a note-issuing company for the permanent securitisation regime For a guide to the contents of a tax...

Shari’a‑compliant finance arrangements (often referred to as Islamic finance arrangements) appear in several forms. The UK has enacted targeted provisions, called the alternative finance arrangement rules, to address the direct tax treatment of particular Shari’a finance structures. These UK rules are designed to ensure Shari’a‑compliant finance is, for UK direct tax, treated as if it were a standard loan. That outcome applies only where the arrangements meet the specific statutory conditions for alternative finance arrangements. At present, the rules extend to five distinct categories of financing. Certain parts of the tax code, such as VAT, have not created bespoke provisions for Islamic finance, which may give rise to uncertainty and to circumstances where Shari’a‑compliant finance is not aligned with the treatment of conventional finance. The direct tax regime for alternative finance arrangements is not confined solely to Islamic finance. Non‑ Shari’a...

This Practice Note This Practice Note sets out the function and fiscal treatment relevant to the general partner in a private equity fund organised as a UK limited partnership. It focuses, in particular, on the following: the responsibilities performed by the general partner the manner in which the general partner is remunerated the fiscal treatment of fund expenses the management charge key points where the fund (and general partner) is constituted outside the UK, and matters to address if the general partner is a limited liability partnership or a Scottish limited partnership (instead of a UK limited company) For broader guidance on the overall structure of UK private equity funds generally, including the fund manager’s role and certain wider tax matters, refer to Practice Note: Tax and private equity funds—fund structure. Please note that this Practice Note does not cover the...

What is a scrip dividend and why do companies make them? A scrip dividend—also known as a scrip or stock issue, a share dividend, or a scrip alternative—arises when a company gives its shareholders the choice to choose between receiving either: a cash dividend; or new shares (usually) of a value broadly equivalent to the cash dividend Such distributions are more prevalent in challenging economic conditions, when companies ordinarily seek to lessen the amount of any cash dividend they need to pay out. Shareholders may often favour the scrip option because it enables them to obtain new shares without having to pay: broker’s fees; or stamp taxes In addition, certain companies put forward ‘enhanced scrip dividends’ to encourage take-up by shareholders. Under an enhanced scrip dividend, the value of the shares issued exceeds the value of the...

Shari’a-compliant financing arrangements Shari’a‑compliant financing arrangements (often described as Islamic financing) can be implemented in a range of formats. The UK has enacted dedicated provisions, termed the alternative finance arrangement rules, to address the direct tax treatment of specified Shari’a finance structures. These rules are intended to ensure that, for UK direct tax purposes, qualifying Shari’a finance is treated in the same way as a conventional loan. That outcome applies only where the financing arrangement satisfies the statutory conditions set out for alternative finance arrangements. At present, the regime encompasses five distinct categories of financing structures. By contrast, some parts of the tax code, such as VAT, have not introduced bespoke measures for Islamic finance. As a consequence, there can be uncertainty about the appropriate VAT treatment where the legal form diverges from the underlying substance, including situations in which...

Business In periods of economic unpredictability (eg arising from high inflation and/or wider instability), organisations frequently cut costs. This can involve shedding contractual obligations and resolving legal disputes, but also purchasers seeking to withdraw from deals—for example, where a business or asset acquisition that seemed compelling to a buyer a couple of years or even months earlier becomes far less attractive. Yet unpicking an acquisition is rarely straightforward and, if not managed with care, can produce unforeseen tax consequences. This Practice Note outlines the tax issues that may emerge where a business or asset sale is unwound after signing and after certain assets and liabilities have already been transferred. It proceeds on the assumption that the buyer and seller are unconnected, are both UK tax resident, and are large corporate entities. For detail on the tax considerations relevant to undoing a share sale, see...

This Practice Note sets out the tax treatment for key managers in a company seeking growth finance where they are required to acquire shares as a condition of a funding round. In the growth capital market, investors often provide money through successive rounds and will typically expect central figures in the business to take part by subscribing for shares in the issuing company... Growth capital—seed, venture and development capital Unquoted businesses regularly need capital at each phase of their journey, from start-up to full establishment and profitability. Many turn to the private equity and venture capital community, where outside backers supply funding in exchange for an ownership stake in companies with the potential for rapid growth. For businesses at an early stage or aiming to scale further, the funding may comprise: seed capital, being finance provided to entirely new...

FORTHCOMING CHANGE relating to the rates of business asset disposal relief ( BADR): Following announcements at the Autumn Budget 2024, the capital gains tax rate applying to disposals qualifying for business asset disposal relief ( BADR) is set to rise to 18% for disposals completed on or after 6 April 2026, aligning with the lower main capital gains tax rate. This comes after an interim increase to 14% (up from 10%) for disposals occurring on or after 6 April 2025. Legislation implementing these changes has been included in the Finance Act 2025. A management buyout (often termed an ‘ MBO’) is the purchase of a business by its existing management team (or selected members of that team), usually with private equity-backed finance. Under such arrangements, the private equity investor acquires a stake in the business (typically a majority interest), and the incumbent...

This Practice Note examines UK tax considerations for the operation and termination of a joint venture conducted through a partnership. For the purposes of this note, it is assumed that: the joint venture parties are UK tax resident corporate entities the joint venture partnership vehicle is also UK tax resident, and the venture’s activities are undertaken in the UK For information on: the establishment of a joint venture partnership, see Practice Note: Tax implications of establishing a joint venture partnership, and joint ventures with a non- UK element, see Practice Note: Tax implications of international joint ventures This Practice Note does not address certain investment partnerships that are unit trust schemes which may not be treated as transparent for tax purposes. Tax implications of operating a joint venture partnership In broad terms, a joint venture partnership operates in the same manner as any other...

The UK has two approaches to taxing IP transactions: The corporate intangibles tax rules: these cover IP that a company develops or purchases on or after 1 April 2002 (except where the asset was acquired before 1 July 2020 from a related party that owned it before 1 April 2002). This regime broadly follows the accounting treatment and, in particular, enables the company to set the acquisition cost against tax over its useful economic life through amortisation deductions. A mixture of general tax rules, with a few specific IP rules: these apply to IP held by individuals and non‑corporate entities, and to IP created or obtained by a company before 1 April 2002 (or acquired before 1 July 2020 from a related party that owned the asset before 1 April 2002). This framework does not specifically track the...

The way consideration payable for buying shares is arranged is rarely simple or linear, and can vary considerably. In many situations payment is postponed, deferred, or made conditional on a particular contingency being satisfied. Selling shareholders will look to maximise the overall price for their shares while also seeking to limit, so far as possible, any tax on disposal by: making full and efficient use of available reliefs to cut or remove any charge, and/or delaying the point in time at which any such tax becomes due However, where the consideration is deferred, the seller can become liable to tax immediately on an amount not yet received (a ‘dry’ tax charge). In calculating chargeable gains, no discount is usually allowed in respect of any consideration that is ascertainable at the date of disposal, even where it is: deferred subject to a...

This Practice Note reviews the UK tax considerations relevant to the establishment, operation and cessation of contractual joint ventures, and explores how the participants might differentiate such an arrangement from a partnership. For the purposes of this Practice Note, it is assumed that the joint venture parties are UK tax resident corporate entities and that the joint venture’s business is conducted in the UK (for information on ventures with a non- UK element, see Practice Note: Tax implications of international joint ventures)... What is a contractual joint venture? A joint venture is a commercial arrangement undertaken by two or more independent parties. There are no specific statutory rules, including tax provisions, that apply solely to joint ventures, and the term itself has no precise legal definition. A joint venture can be structured in various ways. It may operate through a separate joint venture vehicle, most...

Successive UK governments have aimed to cement the UK as one of the world’s most appealing settings for innovation and enterprise. To that end, a wide-ranging suite of tax incentives has been rolled out to encourage innovative companies, supporting both investors and trading entities, and assisting businesses at every phase of a business’s life cycle. These incentives include: R& D tax reliefs patent box business asset disposal relief (previously entrepreneurs’ relief) capital allowances for purchases of: knowhow patents, and plant and machinery venture capital trusts the enterprise investment scheme, and the seed enterprise investment scheme This Practice Note outlines the UK position on key tax...

Core business tax resources These principal tax resources offer practical commentary, legislation, rules and guidance for tax lawyers in private practice or in‑house. Note: access to the titles below requires the appropriate subscription(s)... Yellow Tax Handbook Provides the consolidated, annotated text of all legislation and official materials on income tax, capital gains tax, corporation tax, National Insurance contributions ( NICs), tax credits, petroleum revenue tax and inheritance tax, with references to Simon’s Taxes and HMRC Manuals, where relevant. For lawyers and tax practitioners seeking the underlying legislation on direct taxes and wishing to research guidance on a particular section of direct tax law... Orange Tax Handbook Provides the consolidated, annotated text of all legislation and official material covering VAT, stamp and transfer taxes, insurance premium tax, soft...

Sukuk (singular form: ‘sakk’) Sukuk are Shari’a-compliant financing instruments, commonly described as Islamic certificates or bonds. For further detail, see Practice Notes: The structure and elements of a Sukuk transaction and Sukuk—investment bond arrangements and their UK direct tax treatment— What are sukuk? Where the statutory requirements are satisfied, sukuk can access the UK tax regime that applies to alternative finance investment bond ( AFIB) arrangements. For guidance on those provisions, see Practice Note: Sukuk—investment bond arrangements and their UK direct tax treatment. A distinct variant is sukuk al ijara. In such structures, the bond-issuer (the legislative term for the sukuk issuer) typically holds land on trust for the certificate holders (the sukuk investors). The issuer secures a land interest through a sale and leaseback—the ijara element. For more detail, see Practice Notes: The structure and elements of a Sukuk...