In his recent pre-budget report the Chancellor announced major changes to various taxes which could heavily impact on individuals and businesses. Below are details of the proposed changes which we feel will be of particular interest to our clients, many of which relate to transactions taking place on
or after 6 April 2006.
Capital Gains Tax
In far reaching changes, taper relief (for both business assets and non-business assets) and indexation will be abolished in relation to disposals of assets taking place on or after 6 April 2008. Instead, the capital gain will be calculated at a flat rate of 18% on proceeds less costs.
This will be fantastic news for owners of buy-to-let property, second home owners and the like who would otherwise have been subject to CGT at 40%, but will cause dismay for entrepreneurs and other small business owners or investors in private company shares who may (where business asset taper relief was available) otherwise have been subject to an effective tax rate of only 10%.
Broadly, this will mean that anyone who is planning to dispose of, say a buy-to-let property may prefer to delay the sale until 6 April 2008, but conversely a small business owner or an investor in private company shares may prefer to dispose of his or her business before that date.
Inheritance Tax
The Chancellor announced that he is doubling the nil rate inheritance tax band for couples to £600,000 per couple (married or in civil partnership). However, this should, in fact, make no difference to those couples who have arranged their affairs in such a way that both partners already take advantage of their individual £300,000 nil rate band.
The change will mean that, whereas in the past, if on the first death the family home was passed to the survivor, on the second death the beneficiaries of the estate effectively lost the benefit of the nil rate band of the first partner to die, ( resulting in up to £120,000 more tax than they might otherwise have paid ). Under the new rules, the benefit of the unused proportion of the first nil rate band is not lost but is passed on to be added on to the nil rate band on the second death.
This will help families who may have a home worth more than £300,000 but who have not had the opportunity to plan to ensure that their home is passed on in the most tax efficient way. This change will be of particular interest in the case of the death of a surviving partner on or after 9 October 2007, as this change is to be applied to the estate of individuals whose partner has died previously no matter how long ago the date of the earlier death.
Tax changes for non-domiciled individuals
The Chancellor also proposed changes to tax for non-UK domiciled individuals; Non-domiciled UK resident individuals who currently pay UK tax on their non-UK income on a remittance basis will be subject to an annual £30,000 tax charge. Those non-domiciles who choose not to pay the £30,000 will not be subject to the remittance basis but will instead be subject to UK tax on their worldwide income.
These changes will apply on or after 6 April 2008 to non domiciled individuals who have been resident in the UK for seven years.
The rules with regard to UK residence for tax purposes are also to be changed; this
will mean that non-resident individuals who visit the UK on a large number of separate occasions in any one tax year will need to take extra care, as under the changes, days
of both arrival and departure will be counted in looking at the number of days that the individual is present in the UK, and may therefore mean that he or she unwittingly
becomes UK tax resident.
If you would like to discuss any of the proposed changes and how they may affect you, please get in touch with one of our advisers on:
T: 01483 205890
Capital Gains Tax
In far reaching changes, taper relief (for both business assets and non-business assets) and indexation will be abolished in relation to disposals of assets taking place on or after 6 April 2008. Instead, the capital gain will be calculated at a flat rate of 18% on proceeds less costs.
This will be fantastic news for owners of buy-to-let property, second home owners and the like who would otherwise have been subject to CGT at 40%, but will cause dismay for entrepreneurs and other small business owners or investors in private company shares who may (where business asset taper relief was available) otherwise have been subject to an effective tax rate of only 10%.
Broadly, this will mean that anyone who is planning to dispose of, say a buy-to-let property may prefer to delay the sale until 6 April 2008, but conversely a small business owner or an investor in private company shares may prefer to dispose of his or her business before that date.
Inheritance Tax
The Chancellor announced that he is doubling the nil rate inheritance tax band for couples to £600,000 per couple (married or in civil partnership). However, this should, in fact, make no difference to those couples who have arranged their affairs in such a way that both partners already take advantage of their individual £300,000 nil rate band.
The change will mean that, whereas in the past, if on the first death the family home was passed to the survivor, on the second death the beneficiaries of the estate effectively lost the benefit of the nil rate band of the first partner to die, ( resulting in up to £120,000 more tax than they might otherwise have paid ). Under the new rules, the benefit of the unused proportion of the first nil rate band is not lost but is passed on to be added on to the nil rate band on the second death.
This will help families who may have a home worth more than £300,000 but who have not had the opportunity to plan to ensure that their home is passed on in the most tax efficient way. This change will be of particular interest in the case of the death of a surviving partner on or after 9 October 2007, as this change is to be applied to the estate of individuals whose partner has died previously no matter how long ago the date of the earlier death.
Tax changes for non-domiciled individuals
The Chancellor also proposed changes to tax for non-UK domiciled individuals; Non-domiciled UK resident individuals who currently pay UK tax on their non-UK income on a remittance basis will be subject to an annual £30,000 tax charge. Those non-domiciles who choose not to pay the £30,000 will not be subject to the remittance basis but will instead be subject to UK tax on their worldwide income.
These changes will apply on or after 6 April 2008 to non domiciled individuals who have been resident in the UK for seven years.
The rules with regard to UK residence for tax purposes are also to be changed; this
will mean that non-resident individuals who visit the UK on a large number of separate occasions in any one tax year will need to take extra care, as under the changes, days
of both arrival and departure will be counted in looking at the number of days that the individual is present in the UK, and may therefore mean that he or she unwittingly
becomes UK tax resident.
If you would like to discuss any of the proposed changes and how they may affect you, please get in touch with one of our advisers on:
T: 01483 205890