Please find below Lisa Spearman's latest blog on the Non-Doms issues, highlighted in our sister blog Tax Plus...

Following my blog of yesterday it now appears that the Chancellor has retreated on some of his proposals for the taxation of Non-Doms. Dave Hartnett, the Acting Chairman of HM Revenue and Customs has posted a letter on the Revenue website to clarify the Government’s intention in four areas where concerns have been raised.

According to the letter Hartnett wants….

“to make clear that the Government’s intention – which will be set out in legislation to be brought forward – has always been to ensure that:

• those using the remittance basis will not be required to make any additional disclosures about their income and gains arising abroad. So long as they declare their remittances to the UK and pay UK tax on them, they will not be required to disclose information on the source of the remittances;
• there will be no retrospection in the treatment of trusts and the tax changes will not apply to gains accrued or realised prior to the changes coming into effect;
• money brought into the UK to pay the £30,000 charge will not itself be taxable;
  
  and
  
  
• it will continue to be possible to bring art works into the UK for public display without incurring a charge to tax.
  
  In addition, we will continue to discuss with the US authorities how the £30,000 charge can become creditable against US tax.”
  
  
  

The full text of Hartnett’s letter can be found here.

This clarification is being interpreted as a retreat or a climb down by the Chancellor. However, a Treasury spokesman has been quoted as saying that the intentions have not changed it is just that the draft legislation has gone “slightly awry”. There are still a number of issues to be resolved and I expect we will have to wait until the Budget on 12 March to get further details.

Keep on watching this space.

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Below is another blog from by colleague Barry Hallam, who writes for our sister blog Tax Plus...

It is being reported by the Daily Telegraph that the Government is considering a number of options relating to concessions on the new capital gains tax regime. One of these seems to be the ability to “opt for a deemed sale” before 5 April 2008 to lock into the favourable business taper and indexation relief. Presumably this would be a way of crystallising a gain without resorting to such devices as trusts.

As the Telegraph points out there will be risk associated with this especially if the eventual sale proceeds are less than the deemed proceeds. It will also mean paying the tax a year earlier.

There is a deadline of 31 January 2009 mentioned and it would appear that this is to coincide with the filing date for 2007/2008 tax returns.

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I wanted to draw your attention to a blog posted by my colleague Barry Hallam on our sister blog Tax Plus blog...

It is being reported that Chancellor Alastair Darling will not be able to announce his revised proposals in the three weeks that had been promised. He told MPs today:

"It is not now going to be possible to conclude that process until the New Year,"

This is because he needed more time to study various, differing representations.

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Now that the dust has settled over the pre-budget report, it is an ideal time to consider the implication it will have on company sales in the SME market. The headline news from the pre-budget was that a blanket rate of 18% capital gains tax is to be applied to all gains from 6 April 2008. This supersedes the current taper relief system, which could effectively reduce the capital gains tax rate on the sale of shares held for two years in a privately owned trading company to only 10%.

This effective rate of 10% is historically low and was well used by retiring businessmen and private equity fund managers alike to maximise their net proceeds from company disposals.

It is difficult to determine to what extent the low CGT rate has fuelled the number of disposals in recent years as the amount of private equity money and cheap debt have clearly also had a substantial effect.

The blanket rate of 18% is still very low – especially in comparison to the general higher tax rate of 41% (including national insurance). So in this accountant’s humble opinion, I do not believe that the level of company sales will change significantly following the pre-budget report (although I suspect we may get a pre 5 April 2008 rush). Indeed, I fear that the credit crunch this summer, which is likely to extend well into 2008, will have a far more profound effect on the level of company disposals than the withdrawal of business asset taper relief.

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From 6 April 2008 there is to be a dramatic change in the calculation of Capital Gains Tax (CGT). Essentially there will be a flat rate of tax of 18% based on the difference between sale proceeds and cost. This applies irrespective of the type of asset held; the length of time held; removes relief for indexation totally (effectively halving the tax base cost for assets held pre March 1982) and removes a few other mitigation measures. The Chancellor confirmed that the existing rules will apply until 5 April 2008. Depending on whether you have business assets that qualify for full taper relief (an effective rate of tax of 10%) or non-business assets (best possible rate 24%) you have either a five month window to realise a gain or a short period to wait before you sell.

This is complicated and you need to review the CGT position on assets urgently.

The changes outlined do not apply to companies.

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