L J Hadnum

Offshore Newsletter

Well another budget has come and gone, and by and large the changes weren't too significant. There were certainly very few changes in terms of affecting offshore tax planning arrangements. The main impact was the proposed tax credit for overseas dividends and the removal of the benefit in kind tax charge where overseas property is purchased by a company but occupied by directors or shareholders.

If you're interested in the impact of these, check out my blog on the wealthprotectionreport site which provides comments on these. If you haven't seen the tax blog feature yet,this covers various tax issues and opportunities that I come across, and is linked into the main site.

New Articles

There have been quite a few new articles published on the site, covering amongst other things:

- The new company tax changes - Establishing an overseas property as a residence to reduce UK tax - Using non UK ordinary residence status to save UK tax - Extracting assets from UK companies

We're also in the process of upgrading existing articles for any Budget 2007 changes

Latest Tax Reports Holding a website offshore to reduce UK tax 03/02/2012 If you're looking to set up a website and want to reduce UK tax on the profits generated by that site, one option to avoid tax on the profits is by operating the site from overseas. This article looks at the offshore options to avoid tax on the profits of a website including non residency and using an offshore company. . . . keep reading What to do and when to avoid Inheritance tax 14/11/2011 You're probably already aware of some inheritance tax planning techniques. The 7 year survivorship rule in particular is pretty well known, however in this article we look to bring it all together to tell you exactly what you can do and when to avoid inheritance tax. . . . keep reading How to reduce stamp duty by allocating part of the purchase price to furniture 11/11/2011 Reducing stamp duty on property purchases is difficult. This article looks at one of the key opportunities for reducing stamp duty by apportioning part of the purchase price to furniture or other chattels. . . . keep reading Make the most of the drop in property prices to restructure property investments 09/11/2011 If you have investment properties owned by a company you may be able to take advantage of the decrease in property prices to restructure the ownership and substantially reduce the ultimate capital gains tax charge on disposal.This article looks at the tax implications. . . . keep reading Tax Planning for property developers Property developers are subject to tax on any profits realised as income as opposed to capital. However there are some particular aspects of trading in property that make their tax treatment unique and it is these areas that should be given special consideration. . . . keep reading How the new Statutory Residence Test will apply The Government issued a consultation document on the new Statutory Residence Test on 17 June 2011. In this article we look at how the new Statutory Residence Test will operate and offer some thoughts on the proposed new regime. . . . keep reading Establishing non residence and the new 10 day test We've had a few e-mails from members concerned about articles in the newspapers relating to a new 10 day test. In particular whether HMRC are challenging non residence when an individual spends more than ten working days in the UK in a tax year. In this article we look at this change and clarify the position. . . . keep reading The 2012 changes to the non dom rules (increase in RBC to £50,000 and new remittance exemption). The 2011 Budget brought in some potentially significant reforms to the non dom rules from April 2012. In this article we look at these proposals in further detail. . . . keep reading Latest 2011 changes to becoming non resident with HMRC 6 HMRC has issued a new version of HMRC 6 which contains its guidance on non residency and domicile. For anyone looking to establish non residence with minimal interference from HMRC this is essential reading. The latest version issued in December 2010 contains a number of changes from the previous version. In this article we look at some of the key changes . . . keep reading Which is the best way for non doms to hold UK property? It's often asked which is the best way for non doms to hold UK property. In this article we look at the key tax issues and whether it is beneficial to hold personally, use an offshore trust or an offshore company . . . keep reading More

Tax rate changes

The 2007 Budget brought some pretty significant changes to both the corporation and income tax rates, however most of these changes won't apply until 6 April 2008 or even later.

What are the future changes?

The changes announced in the 2007 Budget are to be brought in over the course of the next two tax years. I've set out below the changes and when they'll be introduced.

2008/2009 tax year

• The small companies rate of corporation tax will increase to 21% (from 20% in the current tax year)

• The main rate of corporation tax will reduce to 28% (from 30% in the current tax year)

• The starting rate of 10% will be removed for salary income and pension income (but will still apply for savings income and capital gains).

• The basic rate band will be reduced from 22% to 20%.

• The upper earnings limit (UEL) for both Employees Class 1 NIC's and the Self Employed Class 4 NIC's will be increased by an additional £75 per week (£3,900 per annum) above indexation.

2009/2010 tax year

• The NIC's UEL for Employees and the Self Employed will be aligned with the income level at which higher rate income tax is payable.

• The small companies rate of corporation tax will increase again to 22%

Alignment of income tax and NIC

This is an interesting development. Under the current regime there are separate 'higher rate' bands for both income tax and NIC.

For example in tax year 2007/2008 for income tax purposes an individual is subject to the 40% rate of income tax when their total income exceeds £39,825 (£5,225 + £34,600).

However in terms of national insurance the Upper Earnings limit is reached when income exceeds £34,840. There is therefore a difference of around £5,000 between the income tax and NIC limits.

This means that someone earning £38,000 would still be subject to 22% income tax (to be reduced to 20% from 6 April 2008) but would only be subject to the 1% NIC charge which is payable once the UEL is exceeded. Therefore their marginal rate of tax would be 23% (ie for every pound they earn in this band, 23p would go to the taxman in income tax and national insurance).

By contrast, someone earning £30,000 would be subject to the 22% rate of income tax and 11% NIC. This would equate to a 33% marginal tax rate, meaning they have a lower income but a higher tax rate.

Someone earning over £39,825 would suffer a 41% marginal tax rate.

Therefore to iron out these discrepencies, the Chancellor will increase the NIC limit by £3,900 in 2008/2009, after indexation. So, if we assume indexation of £1,300, this would equate to a new NIC UEL of £40,040.

In the following tax year (2009/2010) the income tax and NIC limits will then be matched. The details of exactly how this will be achieved has not been released (eg whether there will be a rise in the higher income tax band next year or not) however the net effect is that for tax year 2009/2010 onwards the point at which individuals will become liable to higher rate income tax and cease to pay the 11% class 1 contributions will be the same.

New Forum posts

We're also copying all tax blog posts to the forum to allow members to comment.

• Remittance and transfer overseas through UK

• Capital gain tax

• Non Residence

• Overseas income

• Renting a Place for Self Employment

• Financial Gift to children towards purchasing own

• Resident Non domiciled person inheriting assets

• CGT on Non Dom Gift query

• SENT TO NEW FORUM

• UK Pension

• company formation agents

• QROPS

• Non dom giving up UK residency

• Shareholder Income & Non UK Residency

• PPR and non-doms

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Lee J Hadnum
Site Editor