The Finance Bill 2016 is to amend the power of HM Treasury to make or amend regulations concerning the tax treatment of securitisation companies. In particular, this will allow it to clarify the tax treatment of "residual payments" made by securitisation companies, confirming that they can be paid without withholding tax.

Until now, the tax treatment of residual payments has been a matter of some uncertainty. Residual payments arise because special purpose vehicles typically contain more financial assets than are likely to be required to repay the investors, meet transaction costs and retain a profit. This excess protects against possible poor performance of the assets and enables the special purpose vehicle to obtain an attractive credit rating. There can be uncertainty as to whether the residual payments should be classified as "annual payments", and therefore whether they should be subject to withholding tax. Currently, this uncertainty is addressed by writing to HM Revenue and Customs (HMRC) to seek clearance that residual payments will not be annual payments and so can be paid without withholding tax. By removing the obligation to withhold income tax in respect of such payments, this measure will operate both to eliminate the tax treatment uncertainty and streamline the process of setting up securitisations.

The Finance Bill 2016 provision will have effect from Royal Assent and the regulations will be made following consultation (with the effective date yet to be specified). The government states that the regulations will be developed as part of wider ongoing consultation with industry to update and modernise the tax regime for UK securitisation companies. This will, of course, be a welcome simplification for the securitisation sector but, until the commencement date of the regulations is known, it is advisable to seek HMRC clearance as early as possible if the question of withholding on residual payments arises.

For more information, see Legal update, 2016 Budget: key business tax announcements: Withholding exemption for securitisation residual payments.

For information on the taxation of securitisations, see Practice note, Securitisation: tax.

For information on securitisations generally and residual amounts specifically, see Practice note, Securitisation: overview and Securitisation: overview: Excess spread: extracting profit.

(HMRC Policy Paper, Corporation Tax: securitisation and annual payments and 2016 Budget, paragraph 2.110.)

The Finance Bill 2017 will abolish the requirement to deduct income tax at source from interest on peer-to-peer loans. This builds on an interim exemption from withholding from such interest (see Legal update, No withholding from interest on peer-to-peer loans (interim measure)). This change will have effect from 6 April 2017.

For more information, see Legal update, 2016 Budget: key business tax announcements: Abolition of withholding from savings and peer-to-peer loans.

(2016 Budget, paragraph 2.56.)

As announced in the 2015 Autumn Statement (see Legal update, 2015 Autumn Statement and Spending Review: key finance law announcements: Transactions in securities), Finance Bill 2016 will amend the transactions in securities rules and introduce a new targeted anti-avoidance rule (TAAR) to prevent the use of company liquidations to convert dividend income into a capital receipt. The changes are intended to prevent increased efforts to convert income receipts into capital, in light of the proposed increases to the rates of dividend income from April 2016. The government will respond to the consultation on company distributions in March 2016.

For more information, see Legal update, Draft Finance Bill 2016 legislation: key finance law measures: Changes to transactions in securities rules, new TAAR and distributions consultation.

(2016 Budget, paragraph 2.107.)

As announced in the 2015 Autumn Statement (see Legal update, 2015 Autumn Statement and Spending Review: key finance law announcements: Equity options), Finance Bill 2016 will provide that, on a transfer of shares to a clearance service or depositary receipt issuer as a result of the exercise of an option, a 1.5% stamp duty or stamp duty reserve tax (SDRT) charge will apply on the higher of the market value of the shares or the option strike price (also known as the exercise price). The government has revised the draft Finance Bill 2016 so that the measure will now apply to options entered into on or after 25 November 2015 and exercised on or after 23 March 2016 (rather than 16 March, as originally proposed). The change will allow the measure to take effect for both stamp duty and SDRT at the same time.

For more information, see Legal update, Draft Finance Bill 2016 legislation: key finance law measures: Equity options.

(2016 Budget, paragraph 2.117.)

The government has confirmed its intention to introduce wide-sweeping changes to the tax deductibility of interest for companies. As part of the 2016 Budget, the government announced a number of measures in relation to these changes, including that the existing worldwide debt cap rules will become obsolete and will be repealed. In their place, rules with a "similar effect" will be integrated into the new interest restriction rules, preventing a group's net UK interest deductions from exceeding the global net third party expense of the group.

In general, companies that fall within the UK corporation tax net are entitled to deductions for interest payments that they make and other economic outflows that they incur in relation to loans under the loan relationship. This means that such companies are, broadly, entitled to tax deductions in accordance with the way in which those payments are recognised for accounting purposes. The fact that interest payments are usually deductible for corporation tax purposes means that UK companies often prefer to receive investment in the form of loans rather than share capital, as dividend payments are not deductible.

For more information, see Legal update, 2016 Budget: key business tax announcements: Changes to tax deductibility of interest for companies.

(HM Treasury: Business tax road map.)

The government will introduce legislation in Finance Bill 2016 to ensure offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property. HMRC will also create a task force to focus on offshore property developers. This task force will target offshore structures used to avoid tax on profits and rental income from property development in the UK.

These changes may be of background interest to finance lawyers as there may be less market activity if returns from property development transactions are reduced because they can no longer use an offshore structure to avoid tax.

For more information, see Legal update, 2016 Budget: key business tax announcements: Taxing non-residents' profits from trading in and developing UK land.

For information on real estate development finance generally, see Practice note, Real estate finance (development): overview.

(2016 Budget, paragraphs 1.213 and 1.214.)

In response to a tax review of business energy efficiency, the government has announced that, to simplify the landscape and drive business energy efficiency, it will abolish the carbon reduction commitment energy efficiency scheme (CRC) following the 2018-19 compliance year. It aims to significantly streamline the business energy tax landscape by moving to a system where businesses are only charged one energy tax administered by suppliers, rather than CRC participants being required to forecast energy use, buy and surrender allowances.

For more information, see Legal update, 2016 Budget: key environmental announcements: Abolition of the CRC Energy Efficiency scheme (CRC).

For information on the impact of Energy efficiency taxes on finance transactions, see Practice notes, CRC Energy Efficiency Scheme: issues for finance transactions, Real estate finance (development): overview: Green issues: Energy Act 2011 and the Carbon Reduction Commitment Energy Efficiency Scheme and Real estate finance (investment): overview: Carbon Reduction Commitment Energy Efficiency Scheme.

(2016 Budget, paragraphs 1.190 and 2.170.)