| Sorting
the wood from the trees, let’s look at 5
topics: |
| |
•
Inheritance Tax |
| |
•
Capital Gains Tax |
| |
•
Non-Domiciles |
| |
•
Income sharing (for owner managed companies) |
| |
•
Tax Rates |
|
| Much
of this repeats the October
2007 Pre Budget Report Commentary (we have updated
where applicable). |
Inheritance Tax (no change to the October commentary) |
Since
9 October 2007 the ‘Nil Rate Band’ for Inheritance
Tax is transferable between married couples. |
Comment
This is the first genuinely effective simplification
measure in what is meant to be the simplification era.
We have long been complaining to Government about the
classic situation where an elderly widow is forced to
share her house with a Trust. It was complicated, uncertain
and expensive. There is now no need for Nil Rate Band
Discretionary Trusts on first death. Thank you –
well done Darling! |
| Planning
On first death don’t use the ‘Nil Rate Band’.
If there are surplus assets ensure that they pass to
the survivor and from there make Lifetime Gifts, keeping
the Nil Rate Band both in reserve and growing (remember
it will be £350,000 by 6 April 2010). So the standard
advice to ‘make sure you use it’ is now
likely to be ‘make sure you don’t use it’.
It is a welcome U turn! |
Capital Gains Tax (updated from the October commentary) |
| After
much lobbying from interested parties, the Chancellor
announced in January 2008 that he will introduce ‘Entrepreneurs
Relief’ to cushion the withdrawal of the Business
Asset Taper. Otherwise from 6 April 2008 we have a new
Capital Gains Tax across the board rate of 18%. No more
indexation, no more Taper Relief, no more split periods,
just a plain 18% on the gain after deducting the exempt
amount (currently £9,200). |
| Comment
In October we said ‘This is the second genuinely
effective simplification measure in what is meant to
be the simplification era. But that is where the good
news ends. At a stroke he has removed one of Brown’s
flagship measures for entrepreneurs – the effective
Capital Gains Tax rate of 10%. So this is an increase
of 80% - unprecedented and ludicrous. Darling; what
are you thinking of?’
Now
he has introduced the ‘Entrepreneurs Relief’.
This means that everyone has a lifetime allowance whereby
(roughly) gains of £1,000,000 will enjoy the 10%
rate on ‘Business Assets’ (but watch out
here – the definition of Business Assets is more
tightly drawn, principally that you have to own at least
5% and work for a trading company (hence the name ‘entrepreneurs’
relief). |
Planning
There will be winners and losers depending on the type
of asset, how long it has been owned and the gain. Please
consider the Capital Gains Tax position carefully before
selling – if you don’t want any surprises. |
Non Domiciles (updated from the October commentary) |
| The
Chancellor made no significant changes to the October
announcement. We have added some clarification to the
Commentary:
From
the 6 April 2008 there is an annual tax charge of £30,000
for Non Domiciles who have been resident in the UK for
7 years. It is a voluntary tax charge – it is
like a club membership. If you join and pay the £30,000
you will be able to treat offshore unremitted income
and gains as you have done to date (ie not reported)
but as well as the charge you would also lose your Personal
Allowance. Subject to a de-minimus the alternative is
not to join and be taxed on your offshore income and
gains regardless of whether remitted. |
Comment
Whole books are written on Non Domicile and residency,
put simply this only affects foreigners living in the
UK.
As far as joining the ‘club’ is concerned,
you do so (or not) through the Self-Assessment Tax Return
so there is plenty of time to consider the circumstances
and calculate the cost/benefit. In addition it is a
decision that you take each year – you can be
in one year and out the next. |
Planning
All Non Domiciles will need to review their offshore
assets and income to determine whether it is worth
registering for the £30,000 tax or alternatively
paying UK taxes on worldwide assets and income. We
recommend an early 2008 Tax Return to enable a timely
review.
Also
consider reordering offshore investments. For example
cash, equities, bonds (etc) could be transferred into
an Offshore Life Bond that don't have taxable events
until you want them to (potentially in the future
when you may be non-resident) – if there are
substantial capital gains then it may be worth realising
them prior to 6 April 2008.
|
Income sharing (for owner managed companies) (not in the
October commentary) |
| The
Chancellor announced that the expected legislation to
prevent ‘spousal income sharing’ (principally
in owner managed companies) is delayed for at least
another year for further consultation. |
Comment
This relates to small companies were the principal profit
earner shares the spoils with a non-working spouse to
reduce the overall tax charge. Truth is they can’t
find an easy solution – they should never have
taken on the ‘Arctic Systems’ case as we
are now more relaxed about sharing the spoils for at
least another year!
|
Planning
Although we are more relaxed, we still don’t advocate
taking the mickey when sharing profits (usually by dividends)
with a non-working spouse. We need to maintain a working
relationship with HM Revenue & Customs and as my
(Yorkshire) maths teacher used to say: ‘eh
lad, you scratch my back & I’ll scratch yours’. |
Tax Rates
We set out below the tables of Tax Rates and Allowances.
Note in particular the back door tax rise that is disguised
as a significant National Insurance increase! |
These
are our general views this is not advice. If you would
like advice on how any of the points we have mentioned
(or any that we haven’t) affect you, please do
not hesitate to contact us.
Link to disclaimer |
Rates and Allowances
for 2008 and 2009
Rates and allowances
for income tax, corporation tax, capital gains tax, inheritance
tax and the pension schemes earnings cap are set out below.
|
|
2007-08 (£)
|
2008-09 (£)
|
Increase (£)
|
| Income
tax allowances |
|
|
|
| Personal
allowance
Personal allowance for people aged 65-74
Personal allowance for people aged 75 and over |
5,225
7,550
7,690 |
5,435
9,030
9,180 |
210
1,480
1,490 |
| Income
limit for age-related allowances |
20,900 |
21,800 |
900 |
| Married
couple’s allowance for people born before 6 April
1935
Married couple’s allowance –aged 75 or more
Minimum amount of married couple’s allowance
Blind person's allowance |
6,285
6,365
2,440
1,730 |
6,535
6,625
2,540
1,800 |
250
260
100
70 |
| Capital gains tax annual
exempt amount:
Individuals etc
Other
trustees |
9,200
4,600 |
9,600
4,800 |
400
200 |
| Inheritance
tax threshold |
300,000 |
312,000 |
12,000 |
| Taxable bands 2007-08 (£)
|
Taxable bands 2008-09 (£)
|
| Starting
rate 10% |
0
– 2,230 |
Starting
rate 10% |
–
|
| Basic
rate 22% |
2,230–
34,600 |
Basic
rate 20% |
0
– 36,000 |
| Higher
rate 40% |
Over
34,600 |
Higher
rate 40% |
Over
36,000 |
| Corporation tax profits
2008-09 (£) |
|
| Small
companies' rate 21% |
0
– 300,000 |
| Marginal
relief |
300,001 – 1,500,000 |
| Main
rate 30% |
1,500,001 or more |
The
main rate of corporation tax for 2008-09 will be 28 per cent.
National Insurance changes from 6
April 2008
|
|
2007/2008 |
2008/2009 |
| Class
1 Employees |
| On
first |
£100
pw |
Nil
|
£105
pw |
Nil
|
| Between
|
£100
- £670 pw |
11%
|
£105
- £770 pw |
11%
|
| Over
|
£670
pw |
1% |
£770
pw |
1% |
| Employee's
contracted-out rate |
1.6% |
|
1.6% |
Married
womans
reduced rate |
4.85%
of £100.01 to £670 pw, 1% above £670 |
4.85%
of £105 to £770 pw, 1% above £770 |
| Class
1 Employers |
| On
first |
£100
pw |
Nil
|
£105
pw |
Nil
|
| Over |
£100
pw |
12.8%
|
£105
pw |
12.8%
|
| Employers'
contracted-out rebate, salary related schemes |
3.7% |
|
3.7% |
| Employers'
contracted-out rebate, money purchase schemes |
1.4% |
|
1.4% |
| Class
2 Self employed |
| Flat
rate |
£2.20
pw |
|
£2.30
pw |
| Small
earnings exception |
4,635
pa |
|
4,825
pa |
| Special
Class 2 rate for share fisherman |
£2.85
pw |
|
£2.95
pw |
| Special
Class 2 rate for volunteer development workers |
£4.35
pw |
|
£4.50
pw |
| Class
3 Voluntary |
| Flat
rate |
|
£7.80
pw |
|
£8.10
pw |
| Class
4 Self employed |
| On
profits between |
£5,225
- £34,840 pa |
8%
|
£5,435
- £40,040 pa |
8%
|
| |
above £34,840 |
1% |
above £40,040
|
1% |
Stamp
Taxes
Transfers
of property (consideration paid)
| Rate |
All
land in the UK |
Land
in disadvantaged areas |
| |
Residential |
Non-residential |
Residential |
Non-residential |
| Zero |
£0-125,000 |
£0-150,000 |
£0-150,000 |
All |
| 1% |
Over
£125,000 – 250,000 |
Over
£150,000 – 250,000 |
Over
£150,000 – 250,000 |
N/A |
| 3% |
Over
£250,000 – 500,000 |
Over
£250,000 – 500,000 |
Over
£250,000 – 500,000 |
N/A |
| 4% |
Over
£500,000 |
Over
£500,000 |
Over
£500,000 |
N/A |
New
leases (lease duty)
Duty
on the premium is the same as for transfers of land (except
that special rules apply for non-residential land and property
premium where rent exceeds £1,000 annually. The rules
no longer apply to residential property from 12 March 2008).
Duty on the rent is charged on any part of the net present
value (NPV) which exceeds the threshold..
| Rate |
Net
Present Value of Rent Rate |
| |
Residential |
Non-residential |
| |
Slice
of NPV |
| Zero |
£0
- £125,000 |
£0
- £150,000 |
| 1% |
Over
£125,000 |
Over
£150,000 |
The rate
of stamp duty / stamp duty reserve tax on the transfer of
shares and securities is unchanged at 0.5% for 2008-09. |
