May 17, 2002 New UK Holding Companies Regime   Prior to the Chancellor’s Budget speech on 17 April 2002 there had been much speculation on possible changes to the UK holding company regime. In order to put the UK on the same footing as many other Continental European countries, the consultation process in regard to the capital gains tax treatment for substantial shareholdings came to an end by a Government announcement on 27 November 2001 paving the way for a change in legislation which is to be effective from 1 April 2002. This is excellent news for UK based holding companies enabling restructuring to take place in a tax efficient manner and should be a serious incentive for foreign businesses to locate their headquarters in the United Kingdom. The practical effect of the new provisions is that a trading company or trading group disposing of a substantial shareholding (10% or more) in a trading company will be exempt from corporation tax on capital gains made from the disposal. The company sold must be a trading company or a member of the trading group and the shares have been held for at least twelve months. A further advantage is that the tax free capital gains could then be paid out of the United Kingdom as a dividend free of tax because the UK imposes no withholding taxes on dividends paid by a UK company irrespective of the residence of the recipient. It is not anticipated that the introduction of a rise in employment National Insurance Contributions of 1% to become effective from 6 April 2003 will be a disincentive to companies intending to take advantage of the new holding company and substantial shareholding regime. This change in legislation coupled generally with relatively low rates of corporation tax are expected to encourage a substantial flow of inbound head office business into the UK. For further information on this change to our legislation or to find out how this may benefit your company or clients, please contact Bob Crawford or Duncan Campbell of Jeffrey Crawford & Co.