More tax to line treasury’s coffers

news: More tax to line treasury’s coffers

This week I have put together five recent press reports detailing how important tax collection is to the UK Treasury and Inland Revenue.

Tories fear tax hike for UK expats

According to a report in the Daily Telegraph newspaper, the Treasury’s refusal to rule out a shake-up of the tax rules for expatriates could leave many Britons living abroad facing higher tax bills in the future, a senior UK Opposition spokesman has claimed.

The issue has come to light following visits to Dubai, Hong Kong and South Africa – all jurisdictions with sizeable UK expat communities – by Conservative Party Chairman, Dr Liam Fox, who has since written to Gordon Brown enquiring into the Treasury’s plans for non-resident taxation. Fox’s chief fear would be a switch to the American-style tax system for non-resident nationals, whereby expats will effectively pay the same amount of tax as if they were living in the UK. Under current rules, Britons are taxed on income earned wholly abroad according to the tax rules of the jurisdiction in which they reside. The US government however, compels its citizens working abroad to make up the difference between local tax and US tax if the former taxes are lower. “It is clear from the Treasury’s lack of a denial that it is looking at new ways to milk British taxpayers whether they live in the United Kingdom or not,” Dr Fox accused the government.

However, while the Treasury has admitted that the issue has been under review for several years, it insisted that no major changes to non-resident taxation are in the pipeline, a fact confirmed by independent tax experts, the Telegraph reported.

Inland Revenue may launch new probe into Channel Island firms

Firms based in the Channel Islands may find themselves the target of a renewed Inland Revenue campaign to crack down on tax avoidance, according to reports.

It is believed that the Revenue’s Financial Institutions Project Group is to be given the power to use UK banks and finance firms to gain access to information about funds held offshore.

As a result, accounting firm PricewaterhouseCoopers is reportedly advising its clients to “consider carefully” requests for customer information from the UK on the grounds that client confidentiality may be breached – albeit inadvertently.

It is said that other sources of information, such as suspense accounts or banker’s drafts passed between institutions, will also be investigated by the tax department.

Soaring house prices deliver treasury windfall

The UK Treasury has seen inheritance tax revenues soar in recent years following the rapid rise in house prices. According to an article in the Daily Mail newspaper, Inheritance Tax (IHT) revenues have reached £2.8bn a year compared with £1.6bn in 1997 when Labour came to power in the UK.

The increase has come about because the IHT threshold has risen from £210,000 to £263,000 – an increase of 22 per cent – while house prices have risen 130 per cent since 1997 – meaning more people who inherit homes from their parents or family members must pay the tax, currently at 40 per cent. To keep pace with house price increases, Gordon Brown would have to have raised the threshold to a staggering £483,000. This has meant that 83 towns in Britain now have average house prices greater than the IHT threshold, compared with just one – Gerrards Cross in Buckinghamshire – in 1997.

These facts were revealed by the Conservative Party, with Shadow Chancellor Oliver Letwin, claiming it was an example of “Labour’s fat and bloated government eating more and more of people’s money”, the Daily Mail reported. Many expatriates are liable for IHT as it is based on domicile, not residence, and includes all worldwide assets.

UK government consults on taxation of pre-owned assets

The UK Inland Revenue has issued a fresh consultation on the taxation of ‘pre-owned’ assets, the use of which the government intends to subject to income tax from 2005/2006.

Schedule 15 of the Finance Act 2004 provides for an income tax on the benefits that people enjoy when they have arranged free continuing use of major capital assets that they once owned. The consultation document, issued on August 16, invites views to help prepare draft regulations and associated guidance, as well as identifying other matters of operational concern. The consultation period will run through to November 18, 2004, with a view to new regulations being introduced on April 6, 2005.

Tax warning for holiday homeowners

The money laundering laws could have serious implications for UK taxpayers with holiday homes abroad. The Times newspaper reports that Peter Goodman of accountancy firm Wilkins Kennedy is warning UK residents with holiday homes that they must take advice in the UK and in the country where the property is to ensure that they do not break tax laws.

Income and gains derived from a property abroad may be taxable in the country where the home is situated. However, Goodman warns: “People may let their holiday villa and put the money straight into their UK bank account. People with accountants will know their tax obligations, but others may fall foul of foreign tax laws.”

Under the Proceeds of Crime Act and money laundering rules, if a tax adviser suspects a person of having evaded tax in the UK or another country, he is obliged to report it to the National Criminal Intelligence Service.