Taxation and the Cost of Capital: The Uk Experience

Since the 1960s the UK has witnessed a series of reforms to its corporation tax system. These include the creation of corporation tax as an independent tax in 1965, the gradual introduction of generous capital allowances in the early 1970s, the introduction of the partial imputation system in 1973 and stock relief in 1975, and the 1984 reforms which reduced the tax rate and capital allowances and abolished stock relief. A number of these reforms were designed with the specific intention of influencing company decisions regarding investment and finance through the real cost of capital.