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Budget Comment October 2007 Pre Budget Report

After years of struggling to find anything interesting in Brown’s Budgets – we get the first pre-budget statement of the Brown premiership and WOW – three massive announcements! The good, the bad and the non doms:

Inheritance Tax (good)

From 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 point: 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 ‘make sure you don’t use it’. It is a welcome U turn!

Capital Gains Tax (bad)

From 6 April 2008 we should see 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: 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?

OK it’s not yet certain to happen but Gordon Brown looked like a rag doll in Prime Ministers Questions soon after this announcement and to have to back down on this key measure will surely be curtains for his premiership.

Planning point: Think very carefully about whether to sell assets before or after 5 April 2008. There will be winners and losers depending on the type of asset, how long it has been owned and the gain.

Non Domiciles

From the 6 April 2008 we should see a new annual Non Domicile tax charge of £30,000 for Non Domiciles who have been resident in the UK for 7 years. It is a voluntary charge. Currently they are taxed only on what is remitted into the UK – this rule change means they would be taxed on their world wide income and gains unless they register and pay the £30,000.

Comment: Whole books are written on Non Domicile and residency, put simply this only affects foreigners living in the UK. We have plenty of Non Domiciled clients living in the UK but few with significant offshore assets. We don’t see this as a big money raiser for the Government.

Planning point: 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.

These are our own initial general views. 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.