Tax & Accounting News
Pre-Budget Report summary
09/10/2007
The new Chancellor has delivered his first Pre-Budget Report.
The amount of his own material which it contained was, however, limited.
Firstly, his predecessor had set the income tax, corporation tax
and inheritance tax rates for at least the next three years. Secondly,
two of the main elements - inheritance tax cuts and a charge on non-domiciled
individuals - had been written by his opposite number, the Shadow
Chancellor, as a noisy House of Commons reminded him.
The one major original item - the abolition of capital gains tax
taper relief, to be replaced by a flat 18% rate for all types of
gain - is a baffling measure. Today's Press Notice PN02 begins with
the assertion that "The government recognises the contribution
that small businesses make to the economy and that business owners
should profit from the success of their business." Yet the abolition
of business asset taper relief almost doubles the rate of tax - from
10% to 18% - that most small business owners will pay when they sell
or pass down their business. At the same time, the tax rate for gains
arising on the disposal of non-business assets will be substantially
reduced! How could something which started as a targeted tightening
of the taxation of private equity businesses have ended like this?
In this brief summary, the main taxation proposals are set out under
their respective headings. A more in-depth report will be available
on our website shortly.
Capital gains tax
For individuals, trustees and personal representatives, indexation
and taper relief will be abolished with effect from 6 April 2008.
All chargeable gains after deduction of the annual exemption will
then be taxed at 18%. Business owners who are thinking of selling
their business should certainly consider doing so within the next
6 months, and others may wish to look at ways of triggering a disposal
so as to obtain taper relief. Click here for
full details.
Inheritance tax
In response to Conservative proposals to raise the IHT threshold
to £1 million per individual, Mr Darling has instead decided
to allow spouses and civil partners to transfer any part of the nil
rate band which may be unused on the occasion of the first death.
This effectively gives couples a joint threshold of £600,000
with immediate effect, rising to £700,000 by 2010/11. Transfer
claims will be made by personal representatives following the second
death. This is not so far-reaching as the Conservative proposal,
and some property owners, particularly in the South East of England,
may still pay inheritance tax as a result of high property values.
Click here for
full details.
Non-domiciled and non-ordinarily resident individuals
In another barely-concealed piece of Conservative policy, non-domiciled
or non-ordinarily resident individuals will be subject to an annual £30,000
charge if they wish to retain the remittance basis of taxation after
they have been in the UK for 7 years. Several common remittance basis
planning techniques will also be ended. Click here for
full details.
On the positive side, the remittance basis will be available in respect
of Irish-source income from 6 April 2008 onwards. (Even this measure
is not entirely original, as the ECJ would very likely have insisted
on it in the near future!) Click here for
full details.
Non-residence rules
Contrary to what HMRC specifically stated only a few months ago,
days of arrival in and departure from the UK will, from 6 April 2008
onwards, be counted when deciding whether an individual is UK-resident.
This will significantly affect the length of time some non-resident
individuals can visit the UK.
Company cars
From 6 April 2008, the amount on which the benefit in kind charge
for private fuel is based will rise from £14,400 to £16,900
- an increase of over 17%. As the charge involves C02 emission ratings,
and as further emission-based changes are to be made to the taxation
of company cars next year, it is very important to keep an eye on
emission ratings when choosing company cars.
Self assessment
With effect from 2009/10, Payments on Account will not be required
from anyone whose tax liability in the previous year was less than £1,000
- a doubling of the previous threshold.
National insurance
Due to the increasing use of holiday pay schemes, the national insurance
exemption for holiday pay has been withdrawn for all businesses,
although there will be a transitional 5-year period for the construction
industry, for whose use this exemption was originally intended. Click here for
full details.
Pensions
Still more income tax and inheritance tax charges are to be introduced
on pension funds, in an increasingly complicated area which was supposed
to have been "simplified" in recent years!. Click here for
full details.
Planning Gains Supplement
This particular proposal will not now be introduced in the next Parliamentary
session, and it may now never see the light of day. If this sounds
too good to be true, it is - a White Paper proposes that local authorities
will be allowed to charge a business rates supplement!
Print
page 