Autumn Budget 2021 – key announcements 

United Kingdom

The tone of the Budget was one of optimism for post-Covid recovery balanced with fiscal responsibility – and it is clear that this government is aiming to return, in the minds of voters, to being the party of “small government” and lower taxes.

As such, the Chancellor’s speech ended with a commitment to a mission to reduce taxes by the next election – making it less likely that we will, in the near future, see the increases in the rates of capital gains tax and inheritance tax, reductions in relevant reliefs, and changes to pensions tax relief that some commentators predicted would be announced today.

We highlight below the key tax measures in the Budget.

Real estate taxes

Residential property developer tax (“RPDT”)

Today, the Chancellor announced that the rate of the RPDT will be 4%, with the RPDT-free profit allowance being (as expected) £25 million annually. While a clearer picture of the design of the tax has emerged over the previous months (see our previous articles covering the detail of the draft legislation here and here), the rate and annual tax-free allowance were keenly anticipated.


Proposed changes to the REIT regime, to take effect in 2022, were released earlier this year in the draft Finance Bill 2021/2022. Please see our previous article covering the proposed amendments here.

HMRC updated its Policy Paper covering the amendments today. The key changes proposed appear to remain the same, except that the proposed relaxation of the ‘listing condition’ for REITs owned by institutional investors has been amended to reflect comments received in the course of consultation. While it was previously proposed that the listing requirement for REITs would be removed where institutional investors were at least 99% owned by institutional investors, this has been reduced to a 70% ownership requirement. This will provide greater flexibility in REIT ownership structures.

More detail is expected once updated draft legislation is published on 4 November 2021.

Business rates

Though not going as far as the Opposition’s call to abolish business rates entirely, ratepayers will be pleased to hear the Chancellor’s package of reforms, including:

  • the introduction of a new green investment relief to encourage investment in green technologies;

  • from 2023, a new business rates “improvement” relief, where no increased rate will be payable for the initial twelve-month period post-property improvement (for example, increasing the number of rooms in a hotel);

  • a one-year 50% discount in business rates for the hospitality, retail and leisure sectors; and

  • freezing the business rates multiplier for the next year (2022/2023).

Annual Investment Allowance extension

In order to encourage greater investment, the government will extend the temporary £1,000,000 level of the Annual Investment Allowance until 31 March 2023. The higher level was previously due to end on 1 January 2022.

Corporation Tax

Surcharge on banking companies

The government will legislate in the Finance Bill to set the rate of the surcharge on banking companies at 3% (reduced from 8%) and increase the surcharge allowance available for banking groups from £25m to £100m, to take effect from 1 April 2023.

The effect of the change in the rate of the surcharge is to increase banks’ combined tax rate on profits from 27% to 28%. The change to the surcharge allowance increases the amount of profits that banks can make before they pay the surcharge and is intended to support growth for smaller banks.

Abolition of cross-border group relief

The government has announced that it will legislate in the Finance Bill to repeal the cross-border group relief rules, contained in Chapter 3 of Part 5 of CTA 2010, and make related amendments relating to losses of EEA resident companies trading in the UK through permanent establishments.

The changes will take effect from 27 October 2021. These changes follow on from Brexit, reflecting the fact that the UK is no longer obliged to maintain separate rules for EEA-resident companies, and their intended effect is to bring the group relief rules relating to EEA resident companies into line with those for non-UK companies resident elsewhere in the world. 

R&D tax reform

In his Budget speech, the Chancellor announced that R&D tax reliefs will be reformed to support modern research methods by expanding qualifying expenditure to include data and cloud costs and that the relief will be reformed to refocus on supporting innovation in the UK.

There is also reference in the relevant Budget publication to measures targeting abuse and improving compliance.

We do not yet have full details of these measures, which are to be included within the Finance Bill, to take effect from April 2023.

Culture sector reliefs

There will be a temporary increase in the headline rates of relief available to theatres, orchestras, museums and galleries for expenditure incurred between 27 October 2021 and 31 March 2024, and an extension in the duration of exhibition relief.

In addition, film tax relief will be extended to ensure that it is not lost if a film, originally intended for cinema release, is released instead on streaming services.

Corporate re-domiciliation

A consultation has been launched on the introduction of a corporate re-domiciliation regime, the stated intention of which is to support companies seeking to relocate to the UK.

Re-domiciliation would enable a foreign-incorporated company to change its place of incorporation to the UK whilst maintaining its legal identity as a corporate body.

The consultation seeks to establish the extent of demand for such a regime and sets out an overview of proposed eligibility criteria.

It also seeks views in relation to establishing a corresponding outward re-domiciliation regime, to sit alongside the regime referred to above. 

Anti-hybrid legislation

As previously announced, anti-hybrid legislation introduced in 2017 is being amended to deem certain transparent entities to be partnerships, and to deem members of those entities to be partners, for the purposes of a counteraction under the rules governing hybrid payee deduction/non-inclusion mismatches. This amendment is intended to ensure that a counteraction under this particular section of the anti-hybrids legislation will not be triggered where certain conditions are met.

A similar amendment (a global change to the definition of hybrid entity) was due to be made in the last Finance Act, but this was removed due to certain unintended consequences, raised by stakeholders. 


Notification of uncertain tax treatment by large businesses

As earlier announced, the Finance Bill will legislate for a new requirement for large businesses to notify HMRC when they take a tax position in tax returns that is uncertain.

The legislation will be effective from 1 April 2022, applying to corporation tax, VAT and income tax returns (via self-assessment and including amounts collected via PAYE) that are due to be filed on or after that date.

Uncertainty is defined by reference to two criteria: a provision made in the accounts for uncertainty; or where the position taken is contrary to HMRC’s known position (as stated in the public domain or in dealings with HMRC). There will only be a notification requirement where the tax advantage exceeds a £5million threshold.

The government has stated its commitment to further consideration of a third trigger – where there is a substantial possibility that a tribunal or court would find the taxpayer’s position to be incorrect in material respects – for possible inclusion subsequently.

Exemptions will apply if disclosure is already required under another provision or if HMRC is already aware of the uncertain tax treatment adopted by the large business.

Funds taxation

Qualifying Asset Holding Companies (“QAHCs”)

It has been confirmed that this new tax regime on which we reported in July will be introduced from 1 April 2022. It aims to make UK resident holding companies more attractive by introducing tax exemptions and reliefs to reduce tax leakage in the holding company, but only for QAHCs owned as to 70% or more by regulated funds or qualifying institutional investors.

Revised draft legislation will be published in next week’s Finance Bill. In the meantime a summary of the proposed revisions can be found in the Policy Paper here.

VAT on fund management fees

The government has announced that it will consult on the VAT treatment of fund management fees. We will report on this consultation once it is published. The government is also conducting a wider ranging review of taxation of investment funds and we will also report on any relevant publications in due course.

Personal & employment taxation

Income tax rate for dividends

As announced in September, the income tax rate on dividends will increase from April 2022 by 1.25% for all bands – to mirror the 1.25% increase in national insurance contributions (the “health and social care levy”).

Power to make temporary modifications to taxation of employment income

A new measure has been announced that will allow the Treasury to make regulations to temporarily modify the Income Tax (Earnings and Pensions) Act 2003 under ministerial direction, to provide income tax and NIC relief on specific employee expenses or benefits in kind, in the event of a disaster or emergency of national significance.

This is intended to enable the government to respond quickly and effectively to emergency scenarios including pandemics in future, reducing the need for primary or secondary legislation as a means of doing so.

Any such modification would be time-limited and wholly relieving to the taxpayer, so that this mechanism cannot be used to create a tax charge.


Online sales tax

The government has confirmed that it will consult shortly on the introduction of an online sales tax.

Various duties

A substantial section of the Chancellor’s speech covered various reductions to fuel duty, air passenger duty, and alcohol duties. This may be received well in some corners of the press – although may spark accusations of misalignment with the mission of the upcoming COP26 summit in others.

Further detail covering the detail of the various changes is expected to be released in the draft Finance Bill 2021/22 to be published on 4 November 2021.