Trump’s ‘Big Beautiful Bill’ is bad news for Britain
A hidden clause in Trump’s latest bill could slap UK investors with steep new taxes, threatening transatlantic capital flows and global economic cooperation, says Matthew Bowles
United States President Donald Trump’s latest legislative behemoth has sent shockwaves through Washington. Dubbed “a disgusting abomination” by Elon Musk and greeted with scepticism by Republican Kentucky Senator, Rand Paul, who has declared that “the math doesn’t really add up”, the backlash has been swift. It’s not difficult to see the cause of such upset. The nonpartisan Congressional Budget Office estimates that the ‘One Big Beautiful Bill’ (OBBB) will add $3.8 trillion to the US national debt by 2034, which currently stands at a staggering $36 trillion.
With tax breaks and increased levels of defence spending, the OBBB is presently in a reconciliation state in the Senate, with a 4th July deadline looming.
To many in the UK, it may sound like yet another round of American legislative theatre. However, buried in its over 1,000 pages lies Section 899, a provision that could have serious consequences for British investors and businesses.
Section 899, also known as the “Enforcement of Remedies Against Unfair Foreign Taxes”, introduces sweeping changes to how the US taxes payments of dividends, interest and royalties to foreign persons. It doesn’t just tweak existing rules – it sharply raises withholding taxes. These taxes are deducted at source from dividends, royalties and interest paid to investors who are not resident in the same country as the remitting country.
A tax hostile jurisdiction?
It also targets jurisdictions like the UK and a number of the world’s largest economies, which the US now labels as “tax hostile” due to its digital services tax and other turnover-based measures.
Washington claims that these countries carry out policies that disproportionately target US multinationals.
For investors and businesses caught in this crossfire, the consequences could be severe. A combination of reduced returns, complicated compliance and a chilling effect on investment between two of the world’s largest economies.
The UK’s Digital Services Tax (DST), introduced in 2020, was designed to ensure that tech giants, many of them American, paid what British policymakers perceived to be a fairer share based on the location of their users. The Trump government argues that this constitutes a discriminatory trade barrier; however, instead of responding with negotiation, Section 899 attempts to mete out punishment.
The reclassification strips affected countries of preferential withholding rates under existing tax treaties. UK-based investors, who previously benefited from withholding rates as low as five or 15 per cent, could suddenly face a flat 30 per cent tax on dividends and other payments. This would lead to higher costs for foreign investors, resulting in lower returns on investments after tax. For the US, such investors could reduce their investments, leading to less foreign capital and affecting both businesses and financial markets alike.
Worse, the Bill introduces a sliding increase in current US tax income from US investments. The proposed starting rate is a five per cent increase in year one, but potentially scaling to a maximum aggregate tax rate of 50 per cent on relevant US income. The same applies to interest payments and royalties, effectively clawing back billions in “cross-border cashflows”. This sudden reversal will hit not only large multinationals but also pension funds, private equity groups, and retail investors with exposure to the US market.
Industry groups representing multiple sectors, including real estate, finance and multinationals, have pushed for the reduction or exclusion of the retaliatory tax. Multinationals could decide against operating in a punitive environment, potentially risking 8.4 million US jobs. The irony is real; in attempting to punish foreign governments, Section 899 may instead punish the US economy.
According to the US Treasury International Capital Reporting System, global investors hold almost $40 trillion in US assets. There is a natural concern about the ripple effects of this part of the Bill.
Washington is seeking to use tax policy as a geopolitical lever, regardless of the broader economic consequences for itself and its allies
This is more than a technocratic shift. It marks a deeper departure from decades of Anglo-American cooperation on tax coordination and capital flows. Furthermore, it is evident that Washington is seeking to use tax policy as a geopolitical lever, regardless of the broader economic consequences for itself and its allies. Trump is seeking to force countries to acquiesce to its demands.
The aggressive stance mirrors a broader pattern of attempted short-term fixes that fail to address underlying structural challenges. Governments on both sides of the Atlantic are using blunt fiscal instruments, be that punitive tax measures or monumental levels of spending, that temporarily soothe political pressures but undermine long-term competitiveness.
The real risk is that Section 899 sparks retaliatory escalation. The UK and other nations may retaliate with their own measures, further eroding cooperation and prospects of freer cross-border trade. For investors and businesses alike, this can only create an environment of uncertainty and increased costs.
The government’s response must be strategic, rather than attempt to escalate the situation. Starmer would do well to look at the DST and reassess whether it is or isn’t a targeted, ‘hostile’ tax. British firms and investors must also begin planning for the potential impact, reassessing their exposure to US markets and any associated compliance increases.
If Section 899 proceeds unchecked, the consequences for the US and global investors could be crippling, impacting global capital flows and fracturing transatlantic cooperation. Both Washington and Westminster ought to spot the risks before it’s too late.
Matthew Bowles is strategic partnerships manager at the Institute of Economic Affairs