By: BILL BLEVINS
Financial Correspondent, Blevins Franks
Bill Blevins is Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK.
The year has seen some changes to taxation in the UK. Here’s a review of some of the main issues.
Offshore Disclosure Facility
The Offshore Disclosure Facility (ODF) in the UK took many people by surprise, not least those who were potentially affected by it.
It was aimed at UK tax residents but if you were living in Portugal yet were still a UK tax resident under the UK tax residency rules, or if you retained a UK address for your banking, you would have come under its umbrella as well.
Dubbed an “amnesty”, the ODF was announced in April. It gave people the opportunity to own up if they had failed to declare offshore income, including interest earnings from offshore bank accounts and rental income from Portuguese properties.
They had to register their intention to make a disclosure by June 22. Five months later, on November 26, they had to have made a full disclosure of undeclared tax dating back to 2001 and pay all the tax due and the interest at 7.5 per cent plus a 10 per cent penalty.
If they did not comply the maximum penalty was 100 per cent.
The Treasury estimated that the ODF would bring in between 750,000 pounds sterling and one billion pounds sterling in recouped revenue.
Around 45,000 offshore account holders responded under the ODF and by the November 26 deadline the Treasury had netted 400 million pounds sterling with another 100 million pounds sterling expected from outstanding payments.
Before the November deadline was reached, news broke that HMRC was considering a second “partial amnesty” after holding exploratory discussions with 170 banks, brokers and wealth managers.
This next initiative is reported to be aimed at the more affluent offshore account holder who did not come forward under the ODF.
In his first Pre-Budget Report (PBR), UK Chancellor of the Exchequer, Alistair Darling, announced an increase in the inheritance tax (IHT) threshold from 300,000 pounds sterling to 600,000 pounds sterling for spouses and civil partners.
They were jibes from the shadow Conservative Party who accused Darling’s Labour Party of copying the Tory’s ideas after they had already announced that they would increase the IHT threshold to one million pounds sterling if they won the next General Election.
On the face of it, the increase to 600,000 pounds sterling between legal couples was an intended vote catcher and seemed to be a tax cut.
In reality, since the exemption for the current financial year is already 300,000 pounds sterling and is available for each individual, the new threshold merely allows a spouse to pass on their allowance to their partner, thus creating a 600,000 pounds sterling allowance on the surviving spouse’s demise.
This is something that could be previously achieved anyway with effective IHT tax planning.
In his PBR, Darling also announced that from April next year UK non-domiciles would be taxed 30,000 pounds sterling if they had lived in the UK for more than seven of the previous ten years. After ten years of paying tax the rate would increase.
It was another idea that the Tories claimed that Labour had cribbed from them. The Conservatives had said at their Party Conference the preceding week that they would tax non-domiciles 25,000 pounds sterling to make up the shortfall from their proposed IHT levy.
The tax on non-domiciles is aimed at the 100,000 plus who are resident but non-domiciled in the UK and therefore avoid much UK taxation.
Darling also proposed to use the potential revenue from non-domiciles to fund Labour’s latest IHT concession to spouses and civil partners but was concerned that it would deter many much needed foreigners from seeking employment in the UK, in particular highly skilled workers such as doctors and nurses.
The government has published a consultation document entitled “Paying a fairer share: a consultation on residence and domicile” detailing the proposed changes which runs until February 28, 2008.
Capital gains tax (CGT)
The Chancellor announced an intended reform to lower the CGT to a flat rate of 18 per cent, which would replace the maximum 40 per cent rate for higher rate taxpayers on certain gains over the annual tax free allowance.
The business community reacted angrily as they felt it would harm small businesses that benefited from “Business Asset Taper Relief” where the CGT rate is lowered to 10 per cent on assets held for at least two years.
Darling argued that the proposed flat rate of 18 per cent would simplify the tax and make it more sustainable but against fierce opposition said he was “open to suggestions” for alternatives and held discussions with the business organisations opposing the new tax rate.
The tax was still under consultation in December when the government was considering allowing owners of businesses the right to claim the current rate of CGT even if they do not sell their businesses until January 2009.
Benefit in kind (BIK)
The BIK charge on a UK resident owning an overseas property inside a limited company has been removed not only for the future, but retrospectively.
It is planned that from April 6, 2008, the UK BIK charge on overseas property will be removed in most cases. The exemption follows the 2007 UK Budget. It will be retrospective and will apply so long as:
The company shares are held by individuals; and
The only or main asset of the company is the property; and
The company’s activities are only incidental to the property ownership; and
The purchase was not funded directly or indirectly via a connected company (e.g. by an inter-company loan).