Turning a tax corner in April 2008 - Everyday Law Spring 2008

13 March 2008

New tax rules are due to be introduced shortly. This is a quick trip through the main changes. If you are concerned about any of them, contact us to discuss.

Capital Gains Tax
A new single rate of tax of 18% for capital gains will apply from 6 April 2008. You will be affected if you own assets that will make a gain which is chargeable to Capital Gains Tax (CGT) on a sale or gift. Key examples are land and property, shareholdings and assets used in a trading business.

The new rules apply to individuals, trustees and personal representatives.

If you have owned an asset for a long time and you have built up indexation and taper relief, which could significantly reduce your CGT bill, you could lose them after 5 April 2008 because these reliefs are going to be abolished. If you act now, you could structure your affairs to get the benefit of the reliefs before you lose them.

Many are likely to see an increase in their tax bill if they sell or gift assets after 5 April. Some will benefit from a reduced overall tax rate. It is a matter of considering each case separately.

A new entrepreneurs’ relief is going to be available to reduce the tax rate to 10% on the disposal of certain business assets, up to a lifetime limit of £1 million of gain. We have no draft legislation yet, but it is thought the relief will not be available to as many as hoped.

Consideration must be given to whether any action should be taken before 6 April 2008.

Inheritance Tax and Trusts
Over the last couple of years we have published articles about the impact of the new inheritance tax rules for trusts. The deadline for making changes to existing trusts to improve their inheritance tax position is 5 April 2008.

If you are a trustee, have you considered how the new rules will apply to the trust and have you done any recommended re-structuring?

Non-UK Domiciliaries
If you are a foreign domiciliary and you have been resident in the UK for at least seven of the previous nine tax years, from 6 April 2008 you may have to pay £30,000 each year if you want to carry on using the remittance basis for foreign income and gains. If you do not pay this charge, and your foreign income and gains exceed £1,000 in a tax year you will have to pay UK tax on your worldwide income and gains, even if they are kept offshore.

This departs from the current rule whereby you pay UK tax on foreign income and gains only to the extent that you bring them into the UK (the remittance basis).

If you make a claim to continue using the remittance basis you will no longer be able to benefit from certain allowances, such as the personal allowance for income and the annual exemption for capital gains.

You will need to ask yourself whether it is better to pay the charge or the UK tax on all foreign income and gains.

Residence
If you spend time in more than one country each year, including the UK, you will need to be aware of the new UK residence rules.

Under the new rule days of arrival and departure will be included, thereby increasing the number of days counted for the UK residence test.
 
There are two tests used by the Revenue to find out if you are UK resident for a tax year – being in the UK for more than 183 days in a year, or being in the UK for an average of 91 days over a four tax year period.

Self-Assessment
If you submit self-assessment tax returns to HM Revenue & Customs, there are new filing dates, starting for returns for this tax year. The 2007/2008 return will need to be submitted by 31 October 2008 (paper format) or 31 January 2009 (online filing).

If you submit your paper return by 31 October 2008, the Revenue will calculate your tax for you.

For more information please email Sarah Bogard

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