The Chancellor made a number of important announcements in his
Pre-Budget Report of 9 October 2007, the key highlights of which are
summarised below. For full details including the related press notices
and draft legislation, please refer to the Treasury website.
Domicile & Residence
- Contrary to comments made by Alistair Darling on 3rd July (see our
news item dated 4th July), effective 6 April 2008, non-UK domiciled
individuals who have been resident in the UK for over 7 years and who
wish to continue to be taxed on a 'remittance basis' rather than on
their worldwide income and gains, will have to pay an annual charge of
£30,000. The qualifying period is retroactive so individuals who have
been in the UK longer than seven years at 6th April 2008 will be
affected immediately.
Similarly there have also been changes
made to the rules for determining residence. From 2008/09, days of
arrival and departure will now be taken into account when determining
the length of time spent by an individual in the UK in any tax year.
This will impact both UK domiciled and non-UK domiciled individuals
alike.
Tax Rates - For 2008/09 onwards, the
10% starting rate for earned and pension income will be abolished and
the 22% basic rate of tax reduced to 20%. The higher rate of tax will
continue at 40%.
Capital Gains Tax - For
2008/09 a single rate of capital gains tax set at 18% will apply to
individuals, trustees and personal representatives. Proposals have also
been put forward to simplify the capital gains tax regime by
withdrawing taper relief and indexation allowance as well as
simplification of the share identification rules.
Inheritance Tax
- For 2007/08, the IHT nil rate band remains unchanged at £300,000.
However, under the new rules any nil-rate band unused on the death of
the first spouse (irrespective of the date of death) can be transferred
to the estate of their surviving spouse or civil partner who dies on or
after 9 October 2007. The amount of the nil-rate band available for
transfer will be based on the proportion of the nil-rate band which was
unused when the first spouse or civil partner died.
Anti-Avoidance Measures - The government has also proposed actions to be taken to counter various tax 'avoidance' schemes involving:
- Financial products that disguise interest as dividends which are then exempt from tax for companies.
- Accelerated relief for interest payments on certain qualifying loans.
- The
sale and leaseback of plant or machinery and attempts to exploit long
funding leases to create a tax loss where there is little or no
commercial loss.
If you have any questions relating to the Pre-Budget report please call Iona Martin on 020 7009 6609.