15 Mar 2011
Budget should prioritise simplification to prevent exodus
Corporate tax partner at City law firm Lawrence Graham, Elliot Weston, is calling for the Government to simplify the UK's tax rules to stimulate growth in next week's Budget.
Elliot commented: "The Chancellor should heed warnings to begin to untangle the web of tax rules if the Budget is going to achieve its purported aim to stimulate growth.
"UK businesses will welcome the expected publication in the Budget of a framework for future tax policy committing the Government to making the UK tax system more stable, predictable and simpler.
"Measures which pursue those aims, rather than cutting the 50p top rate of tax, are likely to have the greatest impact in preventing businesses from relocating outside the UK.
"The acid test for the new policy will be the proposed wholesale reform of the controlled foreign companies legislation. The Government is due to give an update on its thinking on the direction of controlled foreign companies legislation in the Budget.
"The Government has grasped that the UK tax system needs to be competitive and has indicated a move to a territorial approach, so that it is the profits from UK activities rather than UK residence which determines the UK tax base.
"Removing unnecessary restrictions in the tax rules can cost the Exchequer nothing but provide a vital stimulus to investment. For example, simplifying the REIT regime to encourage the formation of new REITs and to relax REIT ownership rules would encourage investment in the property sector.
"A more dramatic measure would be allowing REIT investment in property backed debt which would provide an opportunity for banks to offload real estate exposure to investors and so free up banks to begin new lending.
"Limited liability partnerships combine limited liability for investors with tax transparency, but current restrictions prevent LLPs from being used more widely as the obvious vehicle for property investment.
"Above all, the pace of change in tax law needs to be slowed dramatically if businesses are to be able to plan ahead and have confidence in the UK."