Darling’s Budget analysed in detail

Mar 19 2008 By The Journal

Alan Dawson, Partner at Sintons LLP, takes a look at the implications of this year’s Budget.

1. Personal Taxation

From April 6, 2008, the basic rate of income tax will be 20% and the 10% starting rate will be abolished. A new 10% savings rate will be introduced. The higher rate of tax remains unchanged at 40% and there is no change to the taxation of dividends.

Personal allowances are to be increased to £5,435 from 2008/2009 with the age related personal allowances increasing to £9,030 for someone aged between 65 and 74 and £9,180 for someone aged 75 or over.

2. Residence Test and Day Counting Rules

In line with his previous announcement, changes are to be introduced with effect from April 6 in relation to the way in which days are counted to establish an individual’s residence status.

Presently, all days are counted except those on which the individual arrives in and departs from the UK. This has now been altered so that only days on which the individual was resident in the UK at midnight will be counted.

3. Residence and Domicile

Adult non-domiciles or not ordinary resident individuals who have been resident in the UK for more than seven out of the last ten years will be able to continue to claim the remittance basis on payment of an annual charge of £30,000.

4. Capital Gains Tax

There were no major surprises as these had been announced in the pre-Budget statement and subsequent announcement.

The new Entrepreneurs Relief comes into effect on April 6, 2008.

An effective CGT rate of 10% will apply up
to a £1m threshold of gains made on disposals of trading businesses carried on by individuals or trustees either alone or in partnership or
of shares in a qualifying unquoted trading company and of assets used in such trades.

The £1m limit is a lifetime limit.

“Trading” has exactly the same meaning
for Entrepreneurs Relief as it had for the
old business asset taper relief rules.

However, various changes were made in that: (a) the definition of a qualifying company has been narrowed. To qualify it is now necessary for the individual to be an officer or employee of the company and to hold at least 5% of the equity and of the voting rights in it for a period of one year;

(b) where an asset is used by an unquoted trading company and now qualifies for business asset taper relief, it will only qualify for the new Entrepreneurs Relief if it is disposed of by the individual at the same time as shares in the company are disposed of by that individual and the new relief applies to that share disposal;

(c) if the qualifying business, either alone or in partnership, terminated or the qualifying company carried on ceases to trade, the new relief will still be available if the conditions were satisfied throughout a one year period up to the date of cessation and the sale takes place within three years of that date;

(d) if after April 6 2008, shares are exchanged for standard loan notes, which are generally Qualifying Corporate Bonds (QCBs) the gain frozen into the QCB is to be calculated after any Entrepreneurs Relief that would have been available at that time.

Where shares in the old company are exchanged for shares in the acquiring company or for non-QCBs issued by the new company, the current rules usually will
deem there to be no disposal of the old
shares and for the new shares/securities to
be treated as having been acquired at the same time and for the same price as the old shares;

(e) trustees can claim Entrepreneurs Relief but only if the qualifying beneficiary has a qualifying interest in the business in question. Complicated definitions apply and the trustees and beneficiaries must make a joint claim and any relief obtained by the trustees will reduce the individual’s lifetime limit of £1m.

5. Inheritance Tax Nil Rate Band

The pre-Budget report of October 9, 2007, announced that the unused Nil Rate Band on a person’s death could be transferred to the surviving spouse or civil partner who dies on or after October 9, 2007.

This will now be confirmed in legislation. The legislation will also provide that where the value of an asset on a person’s death
has been ascertained for IHT purposes, that value is effective for Capital Gains Tax purposes.

www.sintons.co.uk