The L-Day 2026 measure expands the definition of activities undertaken in the UK sector of the continental shelf to which non-residents can be subject to ring fence tax.
Section 1313 Corporation Tax Act 2009 governs the taxation of profits arising from the exploration and exploitation of the UK sector of the continental shelf and currently provides that (i) profits from exploration or exploitation activities, and (ii) profits from exploration or exploitation rights, are treated as UK-source and, for non-UK resident companies, as profits of a UK Permanent Establishment (PE).
The proposed changes amend the second limb to include profits from immovable property connected with the UK seabed and subsoil, which expressly includes exploration or exploitation rights.
HMRC have stated that this means that rights such as overriding royalty interests, net profit interests and net cashflow sharing arrangements, where they derive their value from, or are connected with, land or natural resources, are to be treated as immovable property and subject to UK tax. They further state that these types of arrangements may fall outside the intended scope of the UK existing provisions due to their interaction with the UK’s tax treaties, so the legislation is being updated to address this interaction and make sure that the framework operates as intended.
