Press Room

4 Jan 2021

Tax News December 2020


View this email in your browser


Andersen LLP

December 2020

At the time of writing Parliament is debating the UK/EU Brexit Trade Agreement that was announced on Christmas Eve. It is likely to be passed despite a number of opposition MPs reportedly defying their party’s three line whip and will abstain/vote against the deal. Either way, with any luck, this chapter of the United Kingdom’s history can be put to bed and we can focus on a new relationship with the European Union and begin to rebuild the economy.

We’re told this morning that the Oxford-Astra Zeneca vaccination has been approved and that the roll-out programme will begin next week. Having been subject to various lockdown measures over the past 9 months that have effectively withdrawn rights we hitherto took for granted, it’s easy to see the upside of having the jab. On the other hand, it’s surely incumbent upon us all to think very carefully about taking a vaccine that has been approved in super quick time (particularly when a corona vaccine has never been developed before now)? After almost a year of continual messaging from Government through to the mainstream media about the dangers of COVID-19, it’s hard not to think (albeit for a nanosecond) that this is all part and parcel of the World Economic Forum’s “Great Reset”! Tin foil hats aside, we must hope and pray that normality resumes as soon as possible in 2021.

Depending on which side of the fence you sit, Brexit was supposed to be the big threat to the UK. Of course if you sit on the other side of the fence the opposite is true! Whatever the case, the economic damage that has been inflicted upon us in response to COVID-19 is way beyond that which Brexit could achieve. The question is: how do we pay for this cost? James Paull, Head of Incentives, spent time thinking about this from a tax perspective over the Christmas holidays and has penned the first of our two articles.

Our second article is Brexit-related but with a Covid twist. As the UK uncouples from the EU we need to reposition ourselves in the world of commerce, technology and finance. Andrew Parkes takes a look at the Treasury’s consultation document entitled “The Tax Treatment of Asset Holding Companies in Alternative Fund Structures” which was published on 15 December. A second stage consultation on detailed design features closes on 23 February 2021 which we await with interest. With the City’s immediate future in doubt as a result of Brexit due to the UK/EU Agreement not covering financial services access to EU markets, a super-competitive AHC regime would certainly help restore employment numbers that have been hammered by the COVID lockdowns.

We hope you enjoy this final edition of the year and that 2021 is a prosperous and above all healthy one for you.

Happy reading,

Miles Dean
Head of International Tax, Andersen LLP


  1. The UK: Paying for Covid with tax rises: what are the least bad options? – James Paull

  2. The UK: Asset Holding Companies – Come on in, the water’s fine – Andrew Parkes and Miles Dean

The UK

Paying for Covid with tax rises: what are the least bad options?

With the bill for Government support during the Covid crisis already high and likely to rise, there will naturally be a time for a reckoning. While it is hoped that some of these costs can be funded through economic recovery, increased productivity and targeted spending cuts, it is only realistic to expect that some of the bill will need to be paid through tax rises.

Tax rises are never popular, so it will always be a case of finding the least bad option. But what does this look like? We would suggest that the “ideal” tax rises would have the following characteristics:

  • they should not be harmful to the economic recovery;
  • they should be fair: for example, they should not seek to tax for a second time income or gains that have already been taxed;
  • liabilities should be simple to understand and calculate;
  • they should not be capable of easy avoidance by behavioural change or restructuring;
  • they should fall in the right places: on those who have done best through the crisis and can afford to pay and away from those who are experiencing difficulties; and
  • any risks from the increased tax should be more than offset by the potential revenue raising capability.

The focus of discussion in the media to date seems to have primarily focused on:

  • raising income tax or VAT;
  • increasing the rate of CGT and other tinkering; and
  • imposing a “one off” wealth tax.

We think all of these are bad ideas and fail to meet at least one, and in some cases many more, of the “ideal” conditions we mention above.

Raising income tax and/or VAT is simple to implement, calculate and understand and, as these taxes are widely paid, could raise significant revenue. However, they are very blunt instruments and would disproportionately impact those already struggling, particularly given the likely size of the rises that would need to be made to raise sufficient revenue. By reducing individual disposable income they would also hamper economic recovery.

Increasing the rate of CGT, potentially to income tax levels, would again be simple to implement and understand. However, it would have relatively low revenue raising capability and would be relatively easy to avoid (e.g. by deferring disposals or by ceasing to be UK resident). It also carries an unquantifiable risk of hampering economic recovery which, given the relatively low potential revenue raise, should be avoided at all costs.

The wealth tax as proposed is just an unequivocally bad idea. It is, in many cases, double taxation, and throws up some complex valuation issues in relation to illiquid assets (particularly property, unlisted shares and chattels) as well as funding problems in respect of these illiquid assets, which typically form a large part of many individuals’ wealth. It cannot be right to expect people to borrow to pay a tax.

So if all of these are bad ideas, what can we propose that is any better? A good starting point of principle would be to look at areas where individuals have previously enjoyed tax relief and, on a strictly short term basis, claw back some of this relief. Similarly, identifying beneficiaries of the Covid crisis and targeting additional tax at these individuals and organisations would seem to be more equitable than across the board targeting. With this in mind, we think the ideas set out below merit further investigation.


A great deal of the wealth of the UK population is held in private pension funds. Estimates of the total amounts vary, but generally run into the trillions. A relatively low levy on these funds could have a very significant revenue raising impact.

Given the levels of volatility that equity markets have experienced over the last 9 months, a levy of, say a 1%, may scarcely be noticeable to most. It could, in some ways, be likened to an additional management fee. For defined contribution plans, the valuation and calculation of the liability is clear. Provisions could permit the pension plan to pay the tax so there are no liquidity issues and the payment is being made out of tax relieved income so is less unfair than a blanket wealth tax.

For defined benefit plans, the valuation is a little more complex – but not much. One could calculate the transfer value of the plan, take the required 1% of this and equate this to a haircut of pension income (say £20,000 to £19,800 per annum). This should, of course, be applied equally to public sector pensions.

Finally, the thorny issue of tax relief on pension contributions could be addressed again, with perhaps a temporary, and we mean temporary, erosion of the ability to claim full tax relief. The problem with this is that it may simply trigger behavioural change and incentivise individuals away from pension savings, which is a bad long-term direction to be taking.

The pill could, and we think should, be sweetened by providing some additional tax relief on distributions from the plan, perhaps by an increase in the tax free lump sum that can be drawn from the pension to reflect contributions to the Covid bill.


Although ISAs are purchased out of taxed income; any income or capital returns are tax-free. This relief could be partially clawed back by a relatively small one off levy on uncrystallized ISA gains. Again this should be relatively easy to value and any payment is from income/gains that would not otherwise be taxed so is less inequitable. The payment could be made from partial redemption and could be administered by the investment manager, so should not lead to undue complexity at individual taxpayer level. Realistically, given the low interest rates currently available, the burden would be expected to fall primarily on stocks and shares rather than cash ISAs.

Covid Windfalls

While many businesses have struggled through Covid, particularly those that have been forced to close, or those that operate in the hardest hit sectors, there can be no doubt that for some businesses Covid has been a time of opportunity.

Consideration could be given to introducing a windfall tax on super-profits where it can be demonstrated that these have flowed from the Covid pandemic. In our view, this could justifiably be set at quite a high rate (perhaps 10%) that would still be lower than the main rate of corporation tax in recent memory (which sat at 30% as recently as 2008).

Of course, there could be some complexity as to who is classified as making “Covid super-profits”. Some organisations will be obvious (such as PPE suppliers, vaccine producers etc). Others may be less so. For example, an online retailer may have experienced a spike in profits partly due to Covid and partly due to other unrelated innovations. Designing a pragmatic mechanism to ensure as fair a method as possible of attributing profits to Covid related benefits may not catch all those who have benefited but could pick up a reasonable proportion.

Clawback of government funding

Some businesses have navigated the crisis without recourse to Government funding. Others have been forced to rely heavily on public money to meet their wage bills. Of course, this is in no way the fault of these latter businesses, but when the time comes to pay for the Government intervention, it is arguable that it is those that have benefited most from it should pay their share. This would only be payable on profits above a certain threshold, so should not impact those businesses still struggling to recover; only those that are, hopefully, out of the woods.

This could be argued to be philosophically no different from the seemingly acceptable principle of asking students earning above a specific level of income to repay, through an income tax surcharge, some of the costs of their university tuition. Using this analogy, a surcharge could be set at an equivalent amount to that contributed by graduates (currently 9%).

The possible liability to this surcharge could continue for a potentially long period to give businesses the chance to recover. Clearly, the surcharge would cease once all Government sourced finance had been repaid (potentially, following the graduate analogy to its conclusion, together with interest of up to RPI plus 3% per annum).

Corporation tax deductions for share plans

For employee share plans that meet certain qualifying conditions, the employer is entitled to a deduction against its profits for corporation tax purposes equal to the amount of gain realised by the employee. There does not need to be any cash cost incurred by the employer in funding these awards so, in some senses, this is a free deduction. Although there should be an accounting cost of delivering these awards, this does not necessarily equate to the deduction that is received, as in many cases the accounting charge will be calculated on a different basis (and may be higher or lower than the statutory deduction). For companies with large share price growth, the statutory deduction can have a material impact on the amounts of corporation tax paid, sometimes wiping out the bill entirely.

The rules relating to share plan deductibility could be adjusted either to move to an accounting basis, a hybrid (a deduction on the lower of accounting costs or statutory basis) or a temporary disallowance of share plan deductions altogether. This would have the impact of increasing the corporation tax take without affecting the cash position of the employer.


In our view, there is no single silver bullet that solves the problem of using tax to pay for Covid costs whilst being in any way equitable. We are concerned that the blunt tools currently being mooted could cause material collateral damage on an individual and/or wider economic level. We therefore think that a selection of the above ideas should be considered. In our view, these suggestions meet all or most of the criteria for an “ideal” tax that we have proposed and are capable of being viewed as targeted at those who are most able to contribute.

As we indicated in the introduction, we in no way wish for tax rises, but if tax rises there must be, then let’s at least try to make them as painless as possible.

If you would like to discuss any of the issues raised in the above article, please contact:

James Paull
Head of Incentives Group
M: +44 (0)7961 118 994 or

The UK

Asset Holding Companies – Come on in, the water’s fine

The UK is rightly proud of its financial sector and an important part of that sector are the asset managers who help to look after the money you have saved.

However, although the UK can provide the managers in persona it doesn’t usually provide the entities that actually hold your investments – that is the “asset holding companies”. This is because although the entities do little other than hold the investments, the UK tax system can levy an uneconomic amount of taxation, especially when the investor is a Pension Fund that wouldn’t otherwise pay any tax.

This means that the asset holding companies are more often than not located outside the UK, and sometimes in jurisdictions that are our competitors for the more valuable asset management industry. The Treasury has, therefore, recently published a second stage consultation looking at how the UK can tempt these entities into the UK. That some of them are currently in Luxembourg and Dublin is just a bonus (to some).

The Treasury is looking to design a special regime for asset management companies that will encourage them to be based here. The regime will look to eliminate withholding tax on interest and take the entities outside of UK capital gains, for example.

The idea is apparently to go for the holy grail of regimes, one that is simple to understand and operate. This is, of course, possible but with simplicity comes the potential for cliff edges and ”losers”, something no politician likes. Also, there will be anti-avoidance rules, and given these are usually now principle based targeted rules, the protection that HMRC would want will almost certainly lead to uncertainty for business, a killer for a proposal such as this. Remember the Patent Box rules?

We will, therefore, have to wait and see if the rules for the simple regime end up being longer than War & Peace.

The consultation runs until 23 February 2021 with what looks like an intended start date of 1 April 2022. We expect draft legislation during the course of 2021 for inclusion in a finance bill and will, of course, keep you posted on developments.

If you would like to discuss the taxation of the Funds Industry please contact:

Andrew Parkes
National Technical Director
M: +44 (0)7522 229 589 or

Miles Dean
Head of International Tax
M: +44 (0)7785 770 431 or

Andersen Tax LLP, 80 Coleman Street, London, EC2R 5BJ

Tel: +44 (0)20 7242 5000
Fax: +44 (0)20 7282 4337  |

The content of this newsletter and any subsequent updates we send do not constitute tax or legal advice and should not be acted upon as such. Specific tax and / or legal advice should be taken before acting on any of the topics covered.

Andersen Global is an international association of legally separate, independent member firms comprised of tax and legal professionals around the world. Established in 2013 by U.S. member firm Andersen Tax LLC, Andersen Global now has more than 4,500 professionals worldwide and a presence in over 149 locations through its member firms and collaborating firms.


Manage your email preferences   |    Unsubscribe.