Return to this year's CCH Budget coverage

Nicole Johnson
is your guide to the latest
Budget Developments
 
Contact Nicole here  

Personal tax

Modernising the personal tax system

The following changes to the personal tax system have been announced:

  • the basic rate of income tax will be reduced to 20 per cent from 2008-09 and merged with the 20 per cent savings rate;
  • the existing 10 per cent starting rate will be abolished and a new 10 per cent starting rate for savings income will be introduced from 2008-09;
  • age-related personal allowances for those aged 65 to 74 and 75 and over will be increased to £9,030 and £9,180 respectively for 2008-09;
  • and the basic personal allowance will be increased by indexation to £5,435 for 2008-09 (as already provided for by a Treasury order made on 10 December 2007).

The higher rate will remain at 40 per cent. There are no changes to the 10 per cent dividend ordinary rate or the 32.5 per cent dividend upper rate.

Employer provided vans: fuel benefit rules

To ensure consistency, the 2008 Finance Bill will amend the Income Tax (Earnings and Pensions) Act 2003 to ensure that:

  • the reimbursement of private fuel costs to employees who are provided with a company van available for their private use is not treated as earnings for tax purposes; and
  • this merely ensures there is no double charge, ie, on both the fuel scale benefit and the reimbursed cost, as is already the case for company cars.

This measure will have effect from the date on which the 2008 Finance Bill receives Royal Assent.

Restrictions on trade loss relief for individuals

Legislation was introduced in the Finance Act 2007 to restrict the loss relief available to be set against other income for the same year by a non-active or limited partner. Similar legislation is now to be introduced to cover sole traders who are carrying on a trade in a non-active capacity; broadly, someone who spends on average less than 10 hours per week personally involved in the trade.

Where the losses arise as a result of tax avoidance arrangements made on or after 12 March 2008, no relief will be available for losses against total income. In other cases, the relief from all trades carried on in a non-active capacity will be capped at £25,000.

Double taxation relief: income tax

For income arising on or after 6 April 2008 and for foreign tax paid on or after 6 April 2008, the credit for any foreign tax paid on trade or professional earnings is no more than the UK income tax due in respect of the same earnings.

Income tax exemptions for the return to work credit, in-work credit, in-work emergency discretion fund and in-work emergency fund

Payments made on or after 6 April 2008 under the following schemes will be exempt from income tax:

  • return to work credit;
  • in-work credit;
  • in-work emergency discretion fund; and
  • in-work emergency fund.

The necessary legislation will be introduced in the 2008 Finance Bill

Top 

Child trust fund: voucher requirement

Changes are to be made to the rules for opening child trust fund (CTF) accounts, with effect from 6 April 2009.

Under the new rules, parents will no longer have to give the CTF voucher for a child to the CTF provider or distributor within seven days after the expiry date on the voucher in order for the provider or distributor to be able to open the account. Instead, the provider or distributor will be able to open the account having obtained the information on the voucher in other ways; for example, by telephone or over the internet. However, providers and distributors will still be able to require vouchers to be provided to them if they so wish.

Individual savings accounts and Northern Rock Bank

As announced on 18 October 2007, the 2008 Finance Bill will introduce legislation which will allow investors who withdrew cash from their Northern Rock individual savings accounts (ISAs) between 13 and 19 September 2007 to reinvest that cash in a new ISA; the cash that was withdrawn will not be counted in the annual limit for investment in a cash ISA.

So, for example, an investor may invest £3,000 in a cash ISA for 2007-08, plus any amount of cash that was withdrawn from a Northern Rock ISA between 13 and 19 September 2007.

The cash must be reinvested in an ISA between 18 October 2007 and 5 April 2008.

Taxation of personal dividends

From 6 April 2008, UK-resident individuals and UK and EEA nationals with small shareholdings in non-UK companies will be entitled to a non-payable dividend tax credit of one-ninth of the distribution received.

From 6 April 2009, the availability of such a credit will be further extended.

Gift aid: transitional relief

A side effect of the cut in the basic rate of tax to 20 per cent from 6 April 2008 is that charities and community amateur sports clubs will see their tax repayments on Gift Aid donations reduce. For each £100 of donations the tax repayment will fall from £28.20 to £25.

For donations made in a three-year period, 2008-09 to 2010-11, HMRC will add a supplement to the repayment so that the tax repayment remains at £28.20 per £100 of donations.

Armed forces council tax relief

This measure provides for council tax relief payments made to members of the Armed Forces to be tax exempt with effect from 1 April 2008

Greater London Authority severance pay

This measure will ensure that severance payments made to members of the Greater London Authority, which are currently taxed in full, will be tax exempt up to the amount of £30,000 with effect from 6 April 2008.

Top 

Residence and domicile

Tax law rewrite: remittance basis and foreign dividend income

An error in the Income Tax (Trading and Other Income) Act 2005 resulted in the foreign dividend income of those UK residents who are liable under the remittance basis being charged at the dividend higher rate of 32.75 per cent rather than 40 per cent higher rate. This is to be corrected with effect from 6 April 2008

Residence and domicile: the residence test and day counting rules

As announced in the Pre-Budget Report, legislation is to be introduced to change the way days in the UK are calculated for the purposes of determining residence for tax purposes. HMRC practice has been not to count days of arrival and departure. However, in the case of Gaines-Cooper v R & C Commrs [2007] BTC 704, HMRC departed from this policy and counted days of arrival on the basis that the taxpayer was present in the UK at midnight on that day. This new policy is now to be given statutory authority with effect from 6 April 2008.

An exemption is to be provided for those in transit through the UK en route to another country, even if present at midnight, so long as the individual does not undertake activities which are to a substantial extent unrelated to their passage through the UK.

Residence and domicile: personal allowances and the remittance basis

As part of a package of well-publicised measures relating to non-domicilliaries and the remittance basis, it is proposed that where individuals claim the remittance basis for a tax year, they should not also benefit from personal allowances and the capital gains tax annual exemption for that year. The restriction does not apply to those who are entitled to the remittance basis because their unremitted foreign income is less than £2,000 p.a. (double the figure originally proposed).

The allowances involved are the basic personal allowance, the age-related personal allowances, the married couples' allowance, the blind persons' allowance and relief for life insurance payments.

Residence and domicile: closing the loopholes in the remittance basis

Again as part of the well-publicised measures relating to the remittance basis, legislation is being taken to plug some of the loopholes traditionally exploited in this area. These include:

  • the ceased source rule whereby remitted income could not be taxed if its source did not exist in the year of remittance;
  • the fact that only income received in the UK in the form of cash could be taxed;
  • remitting income in a year following that in which it arose but in a year when no claim to remittance basis was made;
  • clarification on the calculation of remitted income where a remittance has been made out of a mixed fund of income and non-taxable capital.

In addition, numerous other measure are to be introduced affecting the alienation of income to an immediate family member, non-resident trusts and companies, the transfers of assets abroad provisions, the accrued income scheme, losses for capital gains tax and offshore mortgages.

Residence and domicile: remittance basis and art for public display

An exemption is to be made in respect of works of art brought into the UK, which were purchased abroad with foreign income, from being treated as a remittance, provided they are brought into the UK for the purposes of public display and removed once the display ceases.

The exemption will have effect from 6 April 2008.

Residence and domicile: changes for employment-related securities

The provisions relating to employment-related securities currently only apply to employees who are resident and ordinarily resident. From 6 April 2008, those provisions will be extended to apply to those who are resident but not ordinarily resident.

Gains arising from such securities which are attributable to duties performed outside the UK may be assessed on the remittance basis.

Residence and domicile: annual £30,000 charge for some users of the remittance basis

With effect from 6 April 2008, those adult individuals who are non-domiciled or not ordinarily resident in the UK whose unremitted foreign income exceeds £2,000 in a tax year and who wish to claim the benefit of the remittance basis will have to pay an annual £30,000 charge.

In an effort to ensure that this charge ranks for double tax relief in other countries, it is being described as a tax charge on the unremitted income and gains. When originally proposed, it was to be a stand-alone charge.

Top 

Tax administration

Power to give statutory effect to existing concessions

HMRC has been reviewing its concessions following the decision in John Wilkinson v HMRC Commrs which made clear that the scope of the discretion of HMRC to make concessions from the strict application of the law is not as wide as had previously been thought. The review is expected to be completed in Autumn 2008.

Legislation will be introduced in the 2008 Finance Bill to provide for existing HMRC concessions to be made statutory by Treasury order. This power will have effect from the date of Royal Assent, but no orders under this power are expected to be made until after HMRC's review of concessions has been completed.

HMRC review of powers, deterrents and safeguards: penalties for incorrect returns and failure to notify a taxable activity

Legislation will be introduced in the 2008 Finance Bill to extend the provisions in FA 2007, Sch. 24 to create a single penalty regime for incorrect returns across all the taxes levies and duties administered by HMRC. The penalty will be determined by:

  • the amount of tax understated;
  • the nature of the behaviour giving rise to the understatement; and
  • the extent of disclosure by the taxpayer.

Provision will also be made to extend and adapt FA 2007, Sch. 24 to cover penalties for failing to register or notify HMRC of a new taxable activity and late VAT registration.

The new provisions will have effect from a date to be appointed by Treasury Order. For incorrect returns, this is expected to be for return periods commencing on or after 1 April 2009 where the return is due to be filed on or after 1 April 2010. New penalties for failure to notify are expected to have effect for failure to meet notification obligations that arise on or after 1 April 2009.

HMRC have consulted on the proposals and will continue to consult on the operation of the penalty provisions between the date of Royal Assent to the 2008 Finance Bill and the implementation of the changes.

HMRC review of powers, deterrents and safeguards: compliance checks

Following consultation in May 2007, legislation will be introduced in the 2008 Finance Bill to reform the rules for checking that businesses and individuals have paid the correct amount of tax or claimed the correct reliefs and allowances. The new regime, which will apply to VAT and direct taxes, will have three elements:

  • aligned and modernised record-keeping requirements;
  • new inspection and information powers; and
  • aligned and modernised time limits for making tax assessments and claims.

Information powers and penalties for failure to comply with these obligations will have effect on and after 1 April 2009. Time limits for making assessments and claims will need a transitional period and so will become fully operative on and after 1 April 2010.

HMRC review of powers, deterrents and safeguards: payments, repayments and debt

New measures have been announced to:

  • enable HMRC to introduce a credit card payment service from Autumn 2008;
  • allow HMRC to set repayments it must make to individuals and businesses against the payments it is owed by them, with effect from Royal Assent to the 2008 Finance Bill; and
  • modernise and align HMRC's debt enforcement powers to collect unpaid sums by taking control of goods in England and Wales (to come into effect in line with the appointed day for TCEA 2007, Sch. 12), or by taking action through the Civil Courts (with effect from Royal Assent to the 2008 Finance Bill

Top 

Changes to Customs powers

Legislation will be introduced in the 2008 Finance Bill to clarify the powers of HMRC to examine and search goods and baggage being imported and exported. The measure will amend CEMA 1979, s. 159(1) to allow officers to open and unpack containers themselves rather than insisting that it is done by the proprietor of the goods. The changes will also make clear that HMRC's powers of examination extend to searching containers and baggage.

The measures will come into effect from the date that the 2008 Finance Bill receives Royal Assent.

Tribunal reform: simplifying HMRC's approach to appeals

The Tribunals, Courts and Enforcement Act 2007 creates a First-tier Tribunal into which most existing tribunal appeal functions will be transferred, including tax appeals, and an Upper Tribunal which will hear appeals against the decisions of the First-tier Tribunal (and may hear some first instance appeals in certain circumstances).

Legislation to be introduced in the 2008 Finance Bill will provide a power to introduce secondary legislation to change the way appeals against HMRC decisions are handled; in particular, to provide more consistent arrangements for internal review before appeals are referred to a tribunal.

It is intended that the secondary legislation will come into effect in April 2009, alongside the tribunal reforms.

Funding bonds

Legislation will be introduced in the 2008 Finance Bill to address how a repayment claim in respect of tax treated as paid to HMRC by a funding bond should be handled. The new legislation will have effect only where the interest on the load or debt is paid by funding bonds, and the tax deducted from that interest is also paid to HMRC using funding bonds. Where a repayment claim for the tax deducted is subsequently made, the legislation will allow HMRC to give the claimant funding bonds in satisfaction of the claim.

The new measure has effect for funding bonds issued on or after 12 March 2008.

Waiving interest and surcharges for those affected by national disasters

HMRC will be empowered by the 2008 Finance Bill to waive interest and surcharges due from those adversely affected by national disasters. This power will be used in respect of tax paid late due to the floods in June and July 2007.

Top 

General business

Corporation tax main rates

The Finance Act 2007 set the main rate of corporation tax at 28 per cent from 1 April 2008.

The 2008 Finance Bill will set the same rate from 1 April 2009. The main rate of corporation tax for companies' ring fenced profits will also remain at 30 per cent from 1 April 2009.

Corporation tax small companies' rates

The small companies' rate of corporation tax is to increase from 20 per cent to 21 per cent in respect of all profits apart from ring fence profits, which will remain chargeable at 19 per cent. This rate change is effective from 1 April 2008. The marginal relief fraction will be 7/400 .

The marginal relief fraction will remain at 11/400 in respect of ring fenced profits.

Trading stock

Where trading stock is acquired, disposed of or appropriated otherwise than in the course of the trade, the long-established rule in Sharkey v Wernher 36 TC 275 has applied to replace the actual cost of the stock or the proceeds with their market value when computing the taxable profits.

This rule is now to be put on a statutory basis with effect from transfers of stock occurring on or after 12 March 2008.

Company car benefit tax

The CO2 emissions figure that determines the 15 per cent rate applicable to list price in calculating company car tax for petrol cars (the lower threshold) has already been set at 135 grams per kilometre of CO2 for 2008-09 and 2009-10. From 2010-11, the lower threshold will be reduced by 5g/km to 130.

Top 

Simplification of associated companies rules

Legislation will be introduced in the 2008 Finance Bill to simplify the associated companies rules as they apply for the small companies rate of corporation tax. The definition of control in ICTA 1988, s. 13(2) will be revised to attribute rights or powers held by business partners only where relevant tax planning arrangements (as defined) are or have been in place.

Capital gains tax: relief on disposal of a business (entrepreneurs' relief)

In response to the criticism of the Chancellor's attempt at simplification of capital gains tax as announced in the Pre-Budget Report (PBR), a special relief will be introduced in the 2008 Finance Bill to provide a continuation of the effective 10 per cent tax rate for disposals of business assets. These proposals have been widely publicised and draft legislation was published on 22 January.

The measures are basically the old retirement relief provisions, which were phased out by 2003, but without the age requirement and with a lifetime allowance of £1m of gains to be taxed at an effective 10 per cent rate. The rate applied is still the flat 18 per cent as proposed in the PBR but the gains qualifying for relief are to be reduced by 4/9 before being charged to tax, so as to produce the effective 10 per cent rate.

The relief is to take effect in respect of disposals of business assets on or after 6 April 2008, but with transitional provisions to allow pre-April 2008 gains which have been deferred to benefit from the relief.

Venture capital schemes

In measures affecting investors under the enterprise investment scheme (EIS), the corporate venturing scheme (CVS) and the venture capital trust scheme (VCT):

  • subject to State aid approval by the European Commission, the investment amount on which an EIS investor can claim income tax relief in a year will be increased from 400,000 to 500,000, with effect from 6 April 2008;and
  • for EIS, CVS and VCTs, shipbuilding and coal and steel production will no longer be qualifying activities, so that investors will not receive tax relief for amounts invested in companies whose trades consist substantially of those activities. For EIS and CVS, this restriction will have effect for shares issued on or after 6 April 2008, while for VCTs it will have effect for money raised on or after 6 April 2008.

Top 

Enterprise management incentives

Three changes are to be made to enterprise management incentives (EMIs), as follows:

  • with effect from the date on which the 2008 Finance Bill receives Royal Assent, EMIs will be limited to companies with fewer than 250 full-time employees (or the equivalent where there are part-time workers);
  • also with effect from the date of Royal Assent, companies involved in shipbuilding, coal production or steel production will no longer qualify for EMI, as those activities will become excluded trades; and
  • with effect for options granted on or after 6 April 2008, the individual employee limit on grants of EMI qualifying options will be increased from £100,000 to £120,000

Amendments to the research and development and vaccine research relief schemes

Following an announcement made in the 2007 Budget, changes are to be made to the research and development (R&D) and vaccine research relief (VRR) tax relief schemes. The changes will have effect from a date to be appointed by Treasury Order. The date will be announced once EC State aid approval has been received.

The changes will be as follows:

  • for small and medium-sized enterprises (SMEs) R&D relief will be increased from 150 per cent to 175 per cent;
  • for large companies, R&D relief will be increased from 125 per cent to 130 per cent;
  • companies whose most recent accounts are not prepared on a going concern basis will be prevented from claiming R&D relief and VRR
  • a cap will be introduced to limit the amount of relief available under SME or VRR schemes to €7.5 million per project; and
  • large companies will be required to make a declaration concerning the incentive effect of the relief they are claiming under the VRR scheme.

Pensions

Overseas pension schemes

A measure will be introduced in respect of non-UK pension schemes which will affect internationally-mobile workers in the UK, their employers, and the managers of the schemes. The measure will ensure that the amount of an employer's contribution to a non-registered scheme outside the UK will not affect the calculation of the proportion of the employee's pension fund that is subject to UK tax rules. Prior to this measure, a larger employer contribution has meant that a lower proportion of the employee's pension fund has been treated as having received UK tax relief.

The measure will have effect:

  • for overseas money purchase schemes, for employer contributions paid on or after 12 March 2008; and
  • for overseas defined benefit schemes, from 6 April 2008.

Pensions: regulation making powers

The 2008 Finance Bill will introduce amendments to existing regulation-making powers in respect of registered pension schemes.

New powers will enable regulations to be made to provide that payments deemed to be authorised payments should also be taxed in the same way as other authorised payments. Currently, regulations may deem certain payments to be authorised payments, but they may not provide for the way in which they are to be taxed.

In addition, the rules for trivial commutation payments will be changed to allow small stranded pots to be commuted into a lump sum up to 25 per cent of which can be tax free, as well as savings below £2,000 in occupational pension schemes. This will be in addition to the current rule that imposes a limit of £16,000 on aggregate pension savings for trivial commutation.

These changes will have effect from the date on which the 2008 Finance Bill receives Royal Assent.

Pensions: technical improvements

Following the consultation on draft legislation issued at the time of the Pre-Budget Report, legislation will be introduced in the 2008 Finance Bill to change the way pension increases are tested against the lifetime allowance.

The changes will affect the way in which the lifetime allowance test benefit crystallisation event 3 (BCE3) operates for pension increases, as follows:

  • increases of £250 or less per year will be exempt from the BCE3 test;
  • all pension increases, once awarded, will be able to be rounded up to the nearest whole number without a further test; and
  • there will be a choice in the RPI reference month to be used, so that schemes will be able to use the RPI figure for any month within a period of 12 months leading up to the increase in pension.

The changes for small annual increases and rounding will be backdated to have effect from 6 April 2006 (A Day). The change to the RPI reference month will have effect from 6 April 2008.

Approved occupational pension schemes

Legislation will be introduced in the 2008 Finance Bill which will affect employers who have contributed to occupational pension schemes.

For accounting periods starting on or after 1 April 2004 and ending on or before 5 April 2006, there was no express provision in the legislation to ensure that a company's deduction in respect of pension costs was limited to the pension contributions actually paid during the year. This had, however, previously been provided in the legislation, and was the practice and the continuing policy. The measure to be included in the 2008 Finance Bill will have retrospective effect for that period from 1 April 2004 to 5 April 2006 and will confirm that the rule did apply.

Top 

Capital allowances

Capital allowances: plant and machinery: rate changes and new special rate pool

The following changes to capital allowances on plant and machinery will be made by legislation to be introduced in the 2008 Finance Bill The changes will have effect for the calculation of writing-down allowances (WDAs) for chargeable periods ending on or after 1 April 2008 (for corporation tax purposes) or 6 April 2008 (for income tax purposes).

The main rate of WDAs for pooled plant and machinery (including cars) will be reduced from 25 per cent to 20 per cent.

The rate of WDAs on long-life assets will be increased from 6 per cent to 10 per cent. Any unrelieved expenditure in the long-life asset pool will, from the date of the change, be allocated to a new 10 per cent special rate pool, at which point long-life asset pools will cease to exist.

Capital allowances: small plant and machinery pools

The 2008 Finance Bill will contain legislation allowing businesses to claim a writing-down allowance of up to £1,000 where the unrelieved expenditure in the main pool or the new special rate pool is £1,000 or less. The measure will have effect from 1 April 2008 (corporation tax) and 6 April 2008 (income tax).

Capital allowances: plant and machinery: annual investment allowance

With effect from 1 April 2008 (corporation tax) and 6 April 2008 (income tax), a new annual investment allowance will be available for a business's first £50,000 of expenditure on plant and machinery each year.

Capital allowances: industrial buildings allowances, enterprise zone allowances and agricultural buildings allowances

Following announcements made in 2007, the 2008 Finance Bill will introduce legislation to withdraw industrial buildings allowances (IBAs), enterprise zone allowances (EZAs) and agricultural buildings allowances (ABAs).

Writing-down allowances (WDAs) for industrial buildings and agricultural buildings are to be phased out over three years, starting with chargeable periods ending on or after 1 April 2008 (for corporation tax purposes) or 6 April 2008 (for income tax purposes). In the first of those three years, 75 per cent of the usual WDA will be available; in the second year, 50 per cent will be available; and in the third year, 25 per cent will be available.

The withdrawal of EZAs will have effect from 1 April 2011 (for corporation tax purposes) or 6 April 2011 (for income tax purposes). However, balancing charges where a business disposes of a building within seven years of first use will be retained after April 2011, as will the special rules relating to certain capital value realisations (CAA 2001, s. 327-331).

In addition, an anti-avoidance rule will be introduced in the 2008 Finance Bill to counteract schemes aimed at exploiting legislation in the Finance Act 2007 relating to balancing adjustments and the recalculation of WDAs for IBA purposes.

Capital allowances: plant and machinery allowances: integral features and thermal insulation

The following changes are to be made to plant and machinery allowances, with effect for expenditure incurred on or after 1 April 2008 (for corporation tax purposes) or 6 April 2008 (for income tax purposes).

Integral features will qualify for a 10 per cent special rate of writing-down allowances (WDAs). Integral features are assets such as electrical systems, cold water systems, heating or ventilation systems, lifts and escalators, external solar shading and active facades. The special rate will apply to both initial expenditure and replacement expenditure, so preventing revenue deductions in cases where they might previously have been available.

Currently, WDAs at 25 per cent are available for the costs of adding thermal insulation to a building. A change will be made so that WDAs will also be available for expenditure on thermal insulation added to all existing buildings used for qualifying business purposes, other than residential property businesses. However, WDAs will be at a rate of only 10 per cent.

Top 

100 per cent first-year capital allowances for natural gas, biogas and hydrogen refuelling equipment

The 100 per cent first-year allowance (FYA) for expenditure incurred on natural gas and hydrogen refuelling equipment is currently due to end on 31 March 2008. This availability will now be extended by five years, to 31 March 2013.

In addition, the scope of the allowance will be extended, with effect for expenditure incurred on or after 1 April 2008, to refuelling equipment for biogas.

100 per cent first-year allowances for expenditure on cars with low carbon dioxide emissions

With effect for expenditure incurred on or after 1 April 2008, the following changes will be made to the current 100 per cent first-year allowances regime for low CO2 emission cars:

  • the scheme will be extended by five years so that it will now end on 31 March 2013; and
  • the emissions threshold for qualifying cars will be reduced from 120g/km to 110g/km.

There will be a transitional rule to ensure that cars leased before 1 April 2008 that qualified as low-emission cars under the old rules will not be affected by the reduction in the emissions threshold.

Enhanced capital allowances for energy efficient and water saving (environmentally-beneficial) technologies

From a date to be appointed by Treasury Order, the list of technologies covered by the enhanced capital allowances for energy efficient and water saving (environmentally-beneficial) technologies scheme will be revised.

Capital allowances: introduction of first-year tax credits

The 2008 Finance Bill will contain legislation allowing loss-making companies to surrender losses attributable to enhanced capital allowances on designated energy-saving or environmentally-beneficial plant and machinery in return for a cash payment (first-year tax credit).

Capital allowances buying and acceleration: anti-avoidance

Where a company sells its trade on or after 12 March 2008, new legislation will prevent avoidance by use of arrangements intended to crystalise a balancing allowance on plant and machinery.

Top 

Large business

Unclaimed assets scheme: tax changes

This measure fine-tunes the powers of banks and building societies to collect tax at the 20 per cent rate on outgoing interest payments. The measure insures that the obligation to deduct tax on dormant accounts is only in force when the dormant account is reclaimed.

Investment manager exemption

The legislation covering the investment manger exemption is to be changed by the 2008 Finance Bill to:

  • simplify the approach to defining transactions that are within scope; and
  • remove a condition that has to be met to be within scope.

Alternative finance arrangements

The 2008 Finance Bill will add the power to amend, by secondary legislation, the existing rules on alternative finance arrangements.

Offshore funds: new tax regime

Changes are to be made by the 2008 Finance Bill to the taxation rules for investors in offshore funds and to the rules allowing certain funds to be classed as reporting funds. Consultation on the definition of an offshore fund will continue with a view to revising that definition in the 2009 Finance Bill.

Timing of income tax payments by unauthorised unit trusts

With effect from the date of Royal Assent to the 2008 Finance Bill, changes to the time at which tax deducted from distributions made by unauthorised unit trusts is payable to HMRC, which were unintentionally introduced by the Income Tax Act 2007, will be reversed.

Funds of alternative investment funds

Regulations will be laid to provide an additional tax regime for authorised investment funds (AIFs) that take advantage of proposed new FSA rules for Funds of Alternative Investment Funds (FAIFs) to invest mainly in non-qualifying offshore funds.

Under the proposed new regulations:

  • where an AIF elects for the new tax treatment, the fund will be exempt from tax on offshore income gains; and
  • an investor in a FAIF would then be chargeable solely to income tax on any gain made on disposal of units in the fund.

The changes will have effect on and after a date to be set by Treasury order, the date to be determined by the date the FSA regulatory changes become effective.

Top 

Property authorised investment funds

New regulations, which come into effect on 6 April 2008, will enable certain authorised investment funds (AIFs) to elect for a tax treatment that will move the point of taxation from the fund to its investors.

Under the new regulations:

  • an AIF that invests mainly in property and certain related securities will be able to elect for the property AIF regime to have effect;
  • in a property AIF, rental profit and certain other property-related income will be exempt from taxation in the fund;
  • it will normally be distributed to investors under deduction of tax (basic rate taxpayers will have no further liability, non-taxpayers and exempt bodies will be able to reclaim this tax, while higher rate taxpayers and some corporates will have a further tax liability to pay);
  • other taxable income of the property AIF will also be distributed to investors under deduction of tax; investors will similarly be able to either reclaim the tax or incur a further charge as appropriate; and
  • UK dividends which are currently not taxable in the fund will remain exempt, as they are for all corporate recipients and will fund dividend payments carrying a tax credit to investors as at present.

To qualify for the new regime property, AIFs will have to meet certain conditions.

Life insurance companies: consultation outcomes and simplification

For periods of account beginning on or after 1 January 2008, the tax law is simplified in relation to financing arrangements (contingent loans and financial re-insurance) used by life insurance companies.

For transfers taking place on or after the date of Royal Assent to the 2008 Finance Bill, the tax treatment of transfers of tax-exempt other businesses between friendly societies is aligned with transfers of such businesses between a friendly society and a life insurance company.

For periods of account beginning on or after 1 January 2008 and ending on or after 12 March 2008, the definition of foreign currency assets is amended to remove a requirement to certify the amount of these assets and allow companies to use the revised version for 2007.

From the date of Royal Assent to the 2008 Finance Bill, the power to modify the computation of chargeable gains in respect of structural assets is repealed.

Life insurance companies: interest apportionment

For periods beginning on or after 1 January 2008 and ending on or after 12 March 2008, interest paid by insurance companies on amounts deposited back with them by re-insurers is apportioned appropriately between different categories of business for corporation tax purposes.

Individual saving accounts and other saving accounts: reducing the administrative burden

Changes are to be made to the administrative duties of individual savings account (ISA) managers and of financial institutions which operate the tax deduction scheme for interest (TDSI).

With effect from 6 April 2007, ISA managers will no longer have to provide HMRC with quarterly returns of statistical information, detailing subscriptions received. Instead, there will be an annual return for this information. From the same date, ISA managers will no longer be required to retain copies of investors' applications for ISAs. If they choose not to, they will instead be required to record the information in the application and send a written copy of confirmation to the investor.

From a later date not yet confirmed, financial institutions which operate TDSI will no longer be required to retain applications from investors for gross payment of interest for UK non-taxpayers (Form R85) or for gross payment of interest for non-ordinarily resident individuals (Form R105). Again, if they choose not to retain the forms, they will instead be required to record the information from the form and send a written copy of confirmation to the investor.

Top 

Stamp duty

Stamp duty: alternative finance: SUKUK

The 2008 Finance Bill will contain provisions classifying alternative finance investment bonds which are similar to debt securities (SUKUK) as loan capital for stamp duty purposes. This measure will come into effect from the date that the 2008 Finance Bill receives Royal Assent.

Stamp duty: changes to loan capital exemption

The 2008 Finance Bill will contain measures to widen the exemption from stamp duty currently afforded to most forms of loan capital. In future, even in cases where the right to interest depends on a future event, as long as the loan capital instrument:

  • is party to a capital market arrangement; and
  • the right to interest is on limited recourse terms, it will qualify for exemption from stamp duty.

Reduction of stamp duty administrative burden

Measures will be introduced in the 2008 Finance Bill to ensure that instruments transferring shares on a sale which would have attracted stamp duty of no more than £5 will no longer need to be sent for stamping. This will apply to instruments executed on or after 13 March 2008.

Stamp duty land tax (SDLT): relief for new zero-carbon flats

The relief from stamp duty for zero-carbon homes introduced in the Finance Act 2007 has now been extended to apply to newly-built zero-carbon flats.

The measure also allows Government departments to charge a reasonable fee for the carrying out of assessments to determine whether a flat meets the requirements for qualifying as a zero-carbon home.

Stamp duty land tax (SDLT): notification thresholds for land transactions and rate thresholds for leasehold property

This measure effects three main changes by:

  • raising the current threshold at which a person must has to notify HMRC of non-leasehold land transactions from £1,000 to £40,000. HMRC will also only need to be notified in cases where a lease is granted for seven years or more and where the non-rental consideration amounts to £40,000 or where the annual rental exceeds £1,000;
  • raising the threshold at which the one per cent rate becomes chargeable on the annual rent on a lease from £600 to £1,000; for residential properties, the £600 threshold will no longer be effective; and
  • amending form SDLT 60 so that agents may sign on behalf of the client.

Stamp duty land tax (SDLT): anti-avoidance legislation affecting partnerships

Transfers of an interest in a property within an investment partnership occurring on or after 19 July 2007 will not be caught by anti-avoidance laws introduced by the Finance Act 2007.

Stamp duty land tax (SDLT): group relief: anti-avoidance

For transactions with an effective date on or after 13 March 2008, a new measure will counteract avoidance schemes where the intent is to avoid the clawback of stamp duty relief that would normally occur when a property is transferred between group companies and the vendor company then leaves the group. HMRC will be able to treat the transaction as if the purchaser has left the group before the vendor.

Stamp duty land tax (SDLT): alternative finance: anti-avoidance

For transactions with an effective date on or after 12 March 2008, a new measure will counteract avoidance schemes where financial institutions assist parties to avoid payment of SDLT.

Top 

VAT and indirect tax

VAT: increased turnover thresholds for registration and deregistration

From 1 April 2008, the amount of the annual VAT registration threshold rises to £67,000 from £64,000 and the VAT deregistration threshold rises to £65,000 from £62,000.

From the same date, the registration and deregistration limits for relevant acquisitions from other member states rise to £67,000 from £64,000.

VAT: changes in fuel scale charges

For prescribed accounting periods beginning on or after 1 May 2008, the table of VAT scale charges is amended for taxing private use of road fuel.

Indirect tax returns: correction of errors

For accounting periods commencing on or after 1 July 2008, the limit rises below which errors on previous returns may be corrected on the return for the period in which the errors are discovered.

The de minimis £2,000 limit rises to the greater of £10,000 or one per cent of turnover, subject to an upper limit of £50,000 for VAT, IPT, LFT, CCL and AGL.

For VAT, LFT, CCL and AGL errors above £10,000, the limit for correcting errors on the next return is calculated by reference to net VAT turnover (Box 6 on VAT return) for the return period.

For IPT, this limit is calculated by reference to the net IPT turnover (Box 10 on IPT return).

APD procedures will be amended to increase the de minimis limit to the greater of £10,000 or one per cent of duty due, before adjustments for errors from previous periods, subject to an upper limit of £50,000.

For LFT, CCL and AGL taxpayers, who are not required to be registered for VAT, a single limit of £10,000 applies.

VAT: reduced rate for smoking cessation products

Reduced-rating at five per cent for over the counter supplies by retailers (including supplies made over the internet) of smoking cessation products applies beyond the planned end date of 30 June 2008. This reduced-rating affects all non-prescribed sales of patches, gums, inhalators and other pharmaceutical products held out for sale for the primary purpose of helping people quit smoking.

Smoking cessation products that are dispensed on a prescription remain zero-rated.

Top 

VAT: transitional period for claims

During a transitional period to 31 March 2009, eligible businesses may claim VAT rights that accrued before the introduction in 1996 and 1997 of the three-year time-limit for late claims for a repayment.

Eligible businesses means those VAT-registered between 1 April 1973 and 1 May 1997 and who either declared more output VAT than they were liable to pay, or claimed less input VAT than was due to them.

HMRC may assess any amounts repaid which are subsequently found to have been incorrectly claimed by a business.

VAT: option to tax land and buildings

From 1 June 2008, taxpayers may revoke an option to tax after 20 years. However, in practice, the earliest date an option to tax is revocable is 1 August 2009.

Associated changes concern the following:

  • opted properties held in a VAT group;
  • opted buildings acquired for use as dwellings or for a relevant residential purpose and bare land acquired for construction of a building for such purposes;
  • the introduction of a new option to simplify the option to tax process for taxpayers with a number of properties;
  • early revocation of an option to tax within a cooling-off period;
  • the automatic lapse of an option to tax six years after the taxpayer ceased to have any interest in a property that they had previously opted to tax;
  • the ability, in certain circumstances, to exclude a new building from a previous option to tax; and
  • late applications for permission to opt to tax.

Top 

VAT: amendment to the exemption for fund management

For supplies of services made on or after 1 October 2008, exemption for fund management is extended to apply to UK-listed investment entities (including investment trust companies and venture capital trusts) and certain overseas funds.

Insurance premium tax (IPT): changes relating to overseas insurers

From Royal Assent to the 2008 Finance Bill, the compulsory requirement for overseas insurers to appoint a tax representative will be removed and HMRC will be restricted in its ability to assess an insured party for tax due from an overseas insurer.

Landfill tax: exemption for waste from cleaning up contaminated land

The exemption from landfill tax for cleaning up contaminated land disposed by landfill is to be phased out. No new applications will be accepted from 1 December 2008 and all certificates issued will cease to be valid from 1 April 2012.

Landfill communities fund

The maximum credit that landfill site operators can claim for contributions to environmental bodies is to reduce from 6.6 to 6 per cent with effect from 1 April 2008. Other changes are to be made in respect of these environmental bodies from the same date

New aviation duty replacing air passenger duty (APD)

Legislation will be introduced in the 2008 Finance Bill to allow HMRC to incur expenditure on the development of the new aviation duty announced in the 2007 Pre-Budget Report before its formal introduction in November 2009. The new duty will be payable per plane and will replace air passenger duty.

Aggregates levy: rate

The rate of aggregates levy will increase from £1.95 per tonne to £2.00 per tonne for any aggregate commercially exploited on or after 1 April 2009.

Climate change levy: rates

The rates of climate change levy for supplies of taxable commodities treated as taking place on or after 1 April 2009 are to increase broadly in line with inflation.

Climate change levy (CCL): electricity from coal mine methane

Electricity generated from coal mine methane on or after 1 November 2008 will not be regarded as renewable for CCL purposes and will therefore no longer be exempt.

Climate change levy (CCL): climate change levy accounting documents (CCLADs): simplification

Changes are to be introduced in the 2008 Finance Bill regarding what an invoice needs to contain to qualify as a CCLAD.

Energy Products Directive: expiry of derogations

Changes are to be made to the rates of duty on fuel used for pleasure-flying, pleasure-boating and on waste oils re-used as fuel following the expiry of the UK's derogations from the Energy Products Directive.

Amusement machine licence duty (AMLD): gaming machines

The amount of amusement machine licence duty is to increase for any licence applications received after 4pm on 14 March 2008.

Gaming duty: revalorisation of duty bands

For accounting periods starting on or after 1 April 2008, the gross gaming yield bandings for each duty band will increase in line with inflation.

Tobacco products duty: rates

Rates of duty on tobacco products imported into, or manufactured in, the UK are to increase from 6pm on 12 March 2008.

Alcohol duty: rates

With effect from 17 March 2008, duty rates for alcohol will increase by six per cent in real terms for all alcoholic drinks. Small brewers' relief will continue.

Calculation of alcohol duty

Minor changes are to be made to the method for calculating the amount of alcohol duty due.

Trusts

Income of beneficiaries under settlor-interested trusts

A measure will be introduced in the 2008 Finance Bill to prevent a beneficiary of a settlor-interested trust with savings and/or dividend income finding that the non-trust income is pushed into higher rates so that more tax is due overall.

The new legislation will mean that income from a settlor-interested trust will be treated within ITA 2007, s. 1012 as one of the highest slices of income.

Top 

Inheritance tax

Inheritance tax (IHT) nil-rate band

A consequential amendment to the capital gains tax (CGT) provisions in TCGA 1992, s. 274 has been announced following legislation to be introduced in the 2008 Finance Bill to allow any IHT nil-rate band unused on a person's death to be transferred to the estate of their spouse or partner who dies on or after 9 October 2007. To calculate how much nil-rate band can be transferred from the first deceased spouse's estate, the value of assets in that estate will need to be determined when the second spouse dies. In these circumstances, if the value of the assets differs from any already agreed for CGT purposes, TCGA 1992, s. 274 would require CGT to be recalculated on the basis of the value agreed for IHT purposes.

This measure will mean that the requirement under TCGA 1992, s. 274 to use the IHT valuation for CGT purposes will not have effect where the valuation of an asset does not have to be ascertained for IHT purposes on the death of an individual.

Pension savings and inheritance tax

As announced in the 2007 Pre-Budget Report, the 2008 Finance Bill will introduce legislation to:

  • ensure that tax-relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment charges and, where appropriate, to inheritance tax (IHT); and
  • restore IHT protection to savings in overseas pension schemes.

Inheritance tax: transitional serial interests

Legislation to be introduced in the 2008 Finance Bill will mean that the new rules for interest in possession (IIP) trusts introduced in FA 2006, Sch. 20 will not apply where IIP trusts in place on or before 21 March 2006 come to an end on or after 22 March 2006 and are replaced with new IIP trusts for the same beneficiary within the transitional period.

The transitional period will be extended to 5 October 2008.

Top 

Anti avoidance measures

Controlled foreign companies: anti-avoidance

Anti-avoidance legislation will be introduced in the 2008 Finance Bill to block artificial avoidance schemes that rely on the use of a partnership or a trust to escape a controlled foreign companies (CFC) charge either by taking advantage one of the five exemptions or by arranging for profits to fall to be taxed in such a way that they are outside the scope of the CFC rules.

The measure will take effect on or after 12 March 2008. Accounting periods which straddle this date will be split, with the change affecting the second part of the accounting period.

Leased plant or machinery: anti-avoidance

Measures were announced in the Pre-Budget Report dealing with sale and finance leasebacks which would prevent the finance lease from being treated as a short lease with effect from 9 October 2007. In effect, therefore, they will fall within the legislation relating to long funding leases which denies capital allowances on the cost of the leased asset but, to compensate, only a small proportion of the lease rental income is taxed. The draft legislation published at that time is to be amended to make it clear that, with effect from 12 March 2008, where there is more than one finance lease in an arrangement, none of them are to be treated as short leases.

Also in the Pre-Budget Report measures were announced, to be effective from 9 October 2007, which would put beyond doubt that where a deduction is available for the cost of the leased asset the long funding lease rules restricting the amount of taxable income do not apply. This was to prevent the lessor generating artificial losses. The draft legislation published at that time will be amended to make it clear that each finance lease involved in the arrangement is not to be treated as a short lease which will prevent the lessor from claiming capital allowances.

Legislation, as published in draft on 13 December 2007, is to be introduced to prevent avoidance by the use of mismatched lease chains. These occur where plant or machinery is leased in by an intermediate lessor (as a lessee) under one lease and simultaneously leased out a long funding lease. The rentals paid by the intermediate lessor would be fully deductible but those received would only be taxable in part. The legislation will ensure that the rentals received are taxed on the same basis as the rentals paid so that the intermediate lessor is taxed on its commercial profit.

In addition, legislation is to be introduced to ensure that where a capital sum is received which is either in connection with the granting of a lease of plant or machinery, or reduces the rentals otherwise payable, it is to be taxed as income of the lessor unless it is otherwise brought into account as income or a disposal receipt for capital allowances. The draft legislation published on 13 December 2007 indicated that the proposals would have effect from that date; the Budget Note BN20, however, says that the new rules will apply to payments made on or before 11 March 2008 only in respect of leases of plant or machinery which are not leased with other assets. From 12 March 2008, the rules will also apply to leases of plant or machinery which are leased with other assets but only where it is reasonable to attribute the payment to that plant or machinery and if the payment was income it would not be liable to corporation tax under Sch A.

Financial products avoidance: disguised interest and transferring rights to lease rentals

As a result of disclosures made under the avoidance schemes disclosure regime, a number of measures are to be introduced with effect from 12 March 2008. These measures aim to counter the following arrangements:

  • where companies receive disguised interest in the form of distributions from other UK companies (which are therefore non-taxable);
  • where a tax charge is covered by double taxation relief under ICTA 1988, s. 807A(3);
  • where different accounting treatments for convertible debt are adopted within a group of companies so as to give rise to tax asymmetry;
  • where companies acquire partnership rights in advance at the discounted value of those rights, so as to create disguised interest;
  • where company members of a partnership obtain disguised interest on their partnership contributions by changes in profit-sharing ratios;
  • where transactions designed to produce disguised interest are sought to be excluded from the derivative contracts legislation;
  • schemes intended to exploit the shares as debt rules (FA 1996, s. 91A); and
  • schemes where the lessors of plant or machinery dispose of their right to taxable income under the lease in exchange for a tax-free capital sum.

    Top 

Corporate intangible assets regime: anti-avoidance

New rules to be introduced in the 2008 Finance Bill will clarify that the effect of the related party rules in the corporate intangible assets regime is unaffected by any administration, liquidation or other equivalent proceedings that the company may be involved in.

This will affect intangible asset transactions, including royalties, which become payable after 11 March 2008.

Employment-related securities: deductible amounts

Legislation will be included in the 2008 Finance Bill to amend the wording of the rules affecting the taxation of employment-related securities (ERS) that were rewritten from the Income and Corporation Taxes Act 1988 into the Income Tax (Earnings and Pensions) Act 2003.

Users of avoidance schemes have argued that deductions for amounts that constitute earnings can include earnings which were exempt income and therefore not charged to income tax, thereby:

  • reducing amounts which count as employment income under ITEPA 2003, Pt. 7;
  • reducing chargeable gains under the Taxation of Chargeable Gains Act ; and
  • increasing corporation tax relief available under FA 2003, Sch. 23.

The wording will be amended to confirm that this is not the case with effect for all relevant events and transactions occurring on or after 12 March 2008.

Community investment tax relief and banking

The 2008 Finance Bill will introduce a change to the anti-avoidance rules for community investment tax relief (CITR). The change will benefit certain banks which make investments under the scheme. The changed rule will be deemed always to have had effect.

Under CITR, tax relief is available to investors in community development finance institutions (CDFIs).

Anti-avoidance rules reduce the relief available where the CDFI makes certain kinds of payment to the investor. Where the investor also acts as a banker to the CDFI, the existing rules have applied to reduce relief when the CDFI makes deposits in an account it holds with the bank. The change to be included in the 2008 Finance Bill will ensure that the anti-avoidance rules do not apply to deposits made by the CDFI in the normal course of its banking arrangements.

Repeal of obsolete anti-avoidance provisions

The following legislation relating to shares and securities will be repealed by the 2008 Finance Bill as it is considered to be no longer of any practical use:

  • ICTA 1988, s. 731-736 relating to dividend buying;
  • ICTA 1988, s. 704, para. B and s. 687, Circumstance B relating to transactions in securities; and
  • ICTA 1988, s. 138 and 139 relating to employment securities.

The measure will have effect for individuals and exempt bodies on or after 6 April 2008, and for companies for accounting periods beginning on or after 1 April 2008.

Top 

Avoidance of income tax using manufactured payments

As previously announced, a targeted anti-avoidance rule is to be introduced to deny a deduction to individuals who make manufactured payments as part of a scheme or arrangement where one of the main purposes is the obtaining of a tax deduction.

The legislation will have effect for payments made on or after 31 January 2008.

Double taxation treaty abuse

A scheme seeks to avoid UK tax by diverting income of a UK-resident individual to a foreign partnership comprised of foreign trustees. The scheme is designed to ensure that the income still belongs to the UK resident as he is a beneficiary of the foreign trust. Legislation will clarify, retrospectively, provisions introduced in 1987 so that they apply as intended. This should ensure that, notwithstanding the wording of any double taxation treaty, UK residents pay UK tax on their profits from foreign partnerships.

.

For income arising on or after 12 March 2008, legislation stops tax avoidance through the misuse of Double Taxation Treaties by UK residents.

Tax avoidance disclosure regime: scheme reference number system

Legislation will be introduced in the 2008 Finance Bill to improve the existing system of identifying users of disclosed tax avoidance schemes through the scheme reference number (SRN) system. The key points of the current sytem are:

  • HMRC must issue a SRN to a promoter who discloses a scheme (FA 2004, s. 311 );
  • a promoter must pass the SRN on to clients who implement the scheme (FA 2004, s. 312); and
  • a client who uses the scheme to obtain a tax advantage must report it to HMRC within time limits (FA 2004, s. 313 ).

Legislation will be introduced to ensure that a user of a disclosed scheme is supplied with the SRN issued to the promoter who has disclosed it. It will also require clients who receive a SRN to pass it on to any other person who is party to the same scheme and is likely to obtain a tax advantage from it. It will also provide for HMRC to withdraw a SRN, thereby removing the obligation for the SRN to be passed on to other parties or reported to HMRC.

The legislation, which will contain substantive provisions and powers to make regulations, will have effect from various dates to be appointed by Treasury order.

Oil and gas taxation

North Sea management expenses

This measure serves to close a loophole in the taxation of oil and gas rules by preventing expenses of managing an investment business from being deducted from a company's ring fenced oil and gas profits.

North Sea fiscal regime

Various reliefs available to oil and gas companies operating in UK or on the UK Continental Shelf for the costs of decommissioning North Sea infrastructure are to be extended by the 2008 Finance Bill. The extensions will have effect from various dates in 2008.

Top 

 

Budget 2008
Press Releases

Budget Press Notices

HMRC Budget Notes

 




This page is provided by
cchinformation

For more information on
cchinformation's online product range and how to request a FREE trial
please click here