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 When the 7 year inheritance tax survivorship period can be avoided 30/12/2009 It's well known that you can make gifts of any assets within your estate and provided you survive for seven years they will be free of inheritance tax. This applies for transfers to trusts as well as individuals. However, if you or your relatives are old or infirm seven years may be too long. This article looks at the options for reducing inheritance tax without needing to survive for seven years . . . keep reading Qualifying for rollover relief on capital gains on investment properties that are compulsory purchased 28/12/2009 It's well known there's a rollover relief that allows capital gains on business assets to be deferred when you spend the proceeds on other business assets. However, what's less well known is that there are provisions allowing capital gains on investment properties that are compulsory purchased to be deferred. This article looks in detail at this special form of rollover relief and how to ensure you meet the qualifying conditions . . . keep reading Setting up an offshore joint venture to reduce UK tax 09/09/2009 Many people ask whether they can use an offshore company to carry out their trade and avoid UK tax. For many UK residents this is very difficult to do however forming an offshore joint venture with an overseas colleague or supplier could be a good option. This article looks at how offshore joint ventures could reduce UK tax . . . keep reading Why the UK can be a tax haven 07/09/2009 This will come as a surprise to many readers, however the UK does have a number of very tax advantageous rules which can make it a tax haven for many, even ignoring the remittance basis for non UK domiciliaries. This article looks at why the UK can be a tax haven. . . . keep reading Maximising private lettings relief to reduce CGT 04/09/2009 Lettings relief is not as well known as principal private residence relief, however where it applies it can be very effective in further reducing your capital gains tax charge. This article looks at how lettings relief operates as well as how to maximise the amount of lettings relief to reduce your capital gains tax . . . keep reading Structuring offshore consulting for non UK domiciliaries 02/09/2009 Any Non UK domiciliaries who live in the UK and work overseas should carefully consider how they're going to structure their affairs for UK tax purposes. This article looks at how they will be taxed, and most importantly how they can reduce their UK taxes . . . keep reading Tax planning when your kids turn 18 31/08/2009 When your kids turn 18 it may be worthwhile considering how their newly acquired adult status can be used to reduce your families tax liabilities. This article looks at some of the possibilities for using adult children to reduce UK taxes. . . . keep reading The remittance basis and using UK/overseas debit or credit cards 27/04/2009 We've looked in previous articles at exactly what constitutes a remittance of overseas income or capital gains. In this article we look in detail at exactly when and how taxable remittances are made using UK and overseas credit cards . . . keep reading Transferring shares to children to reduce income tax 10/04/2009 Making the most of a spouses basic rate tax band is a common tax planning strategy but what's next? If you hold shares as an investment can you transfer some of the income to your children to benefit from their lower tax rate? This article looks at how you can transfer shares to your children to reduce income tax. . . . keep reading Reporting income of an offshore company on a UK tax return 08/4/2009 Offshore companies can provide significant UK tax advantages providing they're established as non UK resident. The two main problems for a UK resident looking to use an offshore company to avoid UK taxes are firstly Company residence and secondly the Transfer of assets abroad legislation. In this article we look at disclosure of income of an offshore company on a UK tax return . . . 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.

• 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

• Non Dom Remittance

• Non Dom Remittance

• Capital Gain Tax

• Grandparents - Loans to grandchildren

• Trading ADR's on UK stocks create a remittance?

• Offshore trust and investments

• Offshore Directors of UK Company residency status

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Lee J Hadnum
Site Editor