9 October 2007

Pre Budget Report
From Brown to Blue - is he your Darling?

Alistair Darling gave his first Pre Budget Report and announced a number of changes, the most significant of which being reforms to Capital Gains Tax, Inheritance Tax and Non Domiciled Taxpayers. 

For Capital Gains Tax, the Government are to apply a flat rate of 18% for all assets, regardless of the length of time the asset has been held, or whether it is a business or investment asset, from 6 April 2008. The new rules only relate to individuals, trusts and personal representatives. Companies are unaffected.

For those selling business assets, the effect is an increase in tax rate of up to 8%, whilst those selling investment assets will benefit from a decrease in rate of up to 22%.

Consideration must be given, therefore, as to whether now is the right time to sell your business assets. A delay until after 6 April 2008 could cost you dear.

The Inheritance Tax Relief available for married couples or civil partnerships have been enhanced so that a surviving spouse can utilise the unused percentage of the nil rate band from the first spouse's death. The biggest benefit is that the unused nil rate band is by reference to the date of the surviving spouse's death, so if it has increased by £100,000 since the first spouse's death, an additional £40,000 in tax can be saved over the couple's combined Estate, providing the Will is correctly drafted. This relief is to apply retrospectively to cover all situations where there is a surviving spouse.

The final major change is in respect of Non Domiciliaries, who benefit from being taxed only on the income they remit into the UK, as opposed to the amount they actually earn overseas. After seven years of applying the remittance basis, Non Domiciliaries will have to pay a flat rate of £30,000 per year, if they stay on the same basis this may increase after they have been Non Domiciled for ten years, subject to consultation.

The reform of Capital Gains Tax will be welcome for some, disaster for others. In an attempt to attack Private Equity Houses who benefit from the current Taper Relief rules, they are inadvertently affecting those entrepreneurs who Taper Relief was originally created to encourage.