Jeremy Hunt drops sovereign wealth fund tax plan

Jeremy Hunt Abandons Plans for Sovereign Wealth Funds to Pay UK Corporation Tax

**Jeremy Hunt Abandons Plans for Sovereign Wealth Funds to Pay UK Corporation Tax**

– UK Chancellor Jeremy Hunt has dropped plans to impose corporation tax on property and commercial enterprises owned by sovereign wealth funds (SWFs) after concerns that it would deter investment and slow economic growth.

– Business and Trade Secretary Kemi Badenoch led the opposition against the proposals, warning that some of the world’s largest investors could withdraw from UK projects if the tax changes went ahead.

– “Kemi lobbied the Treasury very hard on this,” said an ally of Badenoch, highlighting concerns that the proposed tax could discourage potential investors and hinder growth.

– The decision to scrap the plan surprised many tax experts. Tim Sarson, UK head of tax policy at KPMG, believed it was almost certain the changes would be implemented before the Budget announcement.

– Had the proposals gone ahead, they would have removed sovereign immunity for corporate taxes on property and businesses, aligning the UK’s treatment of foreign sovereign investors more closely with countries like the US, Australia, and Canada.

– The proposed tax change aimed to level the playing field, addressing what some viewed as an unfair advantage for SWFs over other institutional investors.

– During a consultation last summer, former Financial Secretary to the Treasury Lucy Frazer argued that the changes would not significantly impact foreign investment in the UK and would clarify the tax exemptions available to sovereign investors.

– The Treasury initially planned to introduce the new rules in April 2024, but Hunt decided to abandon the plan, citing concerns about “growth and competitiveness.”

– Hunt’s allies clarified that the proposal predated his appointment as Chancellor last October and that he quickly recognized it could potentially harm investment in the UK.

– The decision to maintain the current tax exemptions was quietly noted in Hunt’s Budget “red book,” stating that after careful consideration, the exemptions would continue, and the government appreciated the constructive feedback from sovereign investors.

– Sir Edward Troup, a prominent tax lawyer and former Treasury official, pointed out that the use of the word “carefully” in the Budget document indicates awareness of potential criticism over the decision.

– The consultation followed several significant SWF investments in the UK, such as the Qatar Investment Authority’s pledge in May to invest £10 billion over five years in technology, healthcare, infrastructure, and clean energy.

– Hunt’s Budget emphasized the importance of increasing investment in key sectors like technology, healthcare, and clean energy.

– Dan Neidle, founder of the think tank Tax Policy Associates, supported reforming the tax system and described Hunt’s decision to abandon the plan as “curious,” arguing that it maintains an undesirable market distortion between SWFs and other investors, especially in the real estate sector.

The decision to drop the proposed tax changes reflects the government’s priority on attracting investment and maintaining a competitive economic environment, despite ongoing debates about fairness in the tax system for different types of investors.