Budget report 2008 by rbc wealth management

Widely billed in progress as a green Budget,Alastair Darling's first March Budget speech wasas unexciting as his predecessor's and containedlittle of the real item. It did contain theexpected addition in taxes on cigarettes, alcoholand high CO2 emitting cars, but was surprisinglybrief, lasting for only 50 min! However, assoon as the premier sat down, the Treasurypublished 107 press releases and various othersupplementary written document.

There is a lot ofinformation to digest!We will surely find ourselves subject to a largenumber of tax alteration from April 6 this year, butmost had already been pre-announced - either byGordon Brown in 2006 and 2007, or in the pre-Budget Report in Oct. Previous Budgetshave outlined the decrease of basic rate tax to20%, the addition in NI bands, and the changesto the treatment of trusts, whilstthe pre-Budget Report heralded the ability totransfer the nil-rate band betwixt spouses,jointly with sweeping changes to the tax ofcapital gains and non-UK domiciliaries. Therehas been significant lobbying from many sides,and though the premier announced nofurther changes to the new government, a supplemental document has revealed amajor alteration of heart on the way in whichsettlors and beneficiaries of offshore trusts will betaxed from April 6.

Offshore trusts were peculiarly hard hit by thedraft legislation published by HMRC in Januarybut, under the proposed new rules, they will stillenjoy major benefits from both a tax and anestate planning position.

Changes To The tax Of Non-UKDomiciliaries (Non Non-Doms)

Individuals

The much publicised £30,000 annual chargepayable by non-doms who have been occupant inthe UK for 7 out of the last 10 tax years, willcome into consequence from April 6 2008. This willapply to those aged 18 and above who haveoffshore income and gains over £2,000 (increasedfrom £1,000).However, this will now be a charge on specificunremitted income and gains and not a standalone charge. This will be good news for UScitizens, who will be able to claim credit againsttheir US tax.

If taxpayers wish to remain taxable on theremittance basis in a particular year, they willhave to identify specific foreign income and gains,and effectively pay tax of £30,000 (either incometax or , as appropriate), inrespect of them. The income and gains whichhave been identified in this way can thensubsequently be remitted to the UK tax free, butonly after all other offshore income and gainsarising in the same year have been remitted andtax paid in respect of them.

As anticipated, source ceasing will no longer beeffective, and where income has already beensource ceased it will be taxable when remitted, ifit is not remitted before April 6, 2008.Currently, non-doms are only taxed on foreigninvestment income where that money is broughtinto the UK as cash. From March 12, this hasbeen widened to include acquired andservices derived from foreign income (although, ina sensible change, personal effects, such aswatches, jewellery, clothes and shoes, have beenexcluded).

Non-doms have frequently taken out offshoreloans to buy UK and paid the interestout of offshore income without it being remittedto the UK. The draft legislation indicated thatthis would change, and the interest on new oramended loans will still be caught. However, theinterest on existing unaltered loans secured onUK residential can continue to befinanced out of offshore income without aremittance for the period of the loan or until April5, 2028.

Offshore Trusts

Non dom settlors of offshore trusts can breatheeasier tonight; the proposals for all trust gains tobe treated as arising to them personally havebeen reversed. However, non-dom beneficiaries(whether or not the settlor) who receive capitalpayments in the UK from offshore trusts will becharged to where those capitalpayments are (effectively) matched to gainsrealised after April 6, 2008.

It has been confirmed that trustees of offshoretrusts can make a rebasing election as at April 6,2008 in respect of both directly and indirectlyheld assets, ie including assets held inunderlying structures. This is a welcomeclarification and effectively means that only gainsrealised or accruing post April 6 can ever bewithin the tax charge for non dom beneficiaries.

HMRC have confirmed that there will be norequirement to disclose information about trustassets, provided the taxpayer has declared anytaxable income or gains from the trust. However,HMRC may seek information if an election torebase the trust assets has been made or theyenquire into a beneficiary's tax return.