Andy Vessey writes:
Alistair Darling delivered his first Pre-Budget Report this week and was promptly dubbed a magpie by the Tories for stealing their ideas.
Many married couples may well have thought that Alistair was indeed a darling for doubling the Inheritance Tax threshold from £300,000 to £600,000 and then allowing the transfer of any unutilised nil rate band on a person’s death to the estate of their surviving spouse or civil partner should the latter die on or after 9th October 2007.
For those married couples who are also business partners, their celebrations may be short lived as tucked away in the HMRC Press Releases was a document that announced consultation on proposed draft legislation aimed at tackling ‘income shifting’. This follows HMRC’s defeat and ungracious acceptance of the Arctic Systems decision in the House of Lords and will address the issue of individuals arranging their tax affairs to shift part of their income to another individual who pays tax at a lower rate.
The legislation, which will aim to take effect from 6 April 2008, will only apply where income is diverted by way of company dividends or partnership profits. Income from other sources should not be affected.
HMRC have stated that they will take into account the activity of individuals in the business, investments that they have made and the risks they are exposed to by being involved in the business.
If the Government are intending to push this legislation through for next tax year then there will only be a short consultation period evoking memories of the MSC consultation period – not a good omen!
Other notable tax highlights include:
- Major Capital Gains Tax (CGT) reform, introducing a single 18 per cent rate on gains from April 2008. Taper relief and indexation allowance will therefore be withdrawn from that date. These changes will produce winners and losers as currently CGT is paid at an individual’s marginal rate of income tax.
- Main rate of Corporation Tax reduced from 30 per cent to 28 per cent from April 2008.
- Non-domiciled UK residents using the remittance basis for more than 7 years will have to pay an annual charge of £30,000 per year if they wish to preserve usage of the remittance basis. If they do not pay the £30,000 charge then they will be required to declare all their world wide income for UK tax purposes rather than just the income they bring into the UK from abroad. These changes will apply on or after April 6 2008.
- Individuals who pay tax under self assessment will not have to make payments on account of the following tax years liability if their annual income tax bill is less than £1000 starting from 2009/10. This represents a doubling of the current limit.
Senior Tax Consultant
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