New 2008 Budget Changes

This means that you can now make an investment into EIS shares and gain an income tax credit of up to £100,000. So if you had an income tax liability of £50,000, an EIS investment of £250,000 would eliminate it. There are though restrictions on how long you need to hold the shares for.

This means that as from 2008 you can receive foreign dividends (providing you own less than 10% of the company) and offset the 10% tax credit in the same way as for UK dividends. Basic rate taxpayers won't have an income tax liability on the overseas dividends. See this article:How overseas dividends are taxed for more information

These were to combat mainly small husband and wife companies from utilising two basic rate tax bands where the work was done predominantly by one spouse.

Draft income shifting rules were issued in December but they had a very wide scope and were very impractical (essentially meaning that shareholders needed to compare what they received from the company with the arms length value of their contribution). Very messy in practice and therefore this has been put on hold until 2009.

The same as in the draft legislation. We'll have an article published tomorrow looking at the detailed application of these rules for anyone planning on selling their company or business.

The original draft legislation would have made UK resident but non domiciled beneficiaries of offshore trusts subject to tax on an arising basis on receipts from an offshore trust.

The new provisions amended this so that they would be taxed on a remittance basis. It also ensured that non domiciled settlors of offshore trusts wouldn't be subject to the settlor charge (which apportions gains of an offshore trust to UK resident settlors where they or their 'family' can benefit).

The new capital payment rules for non UK domiciliaries also ensure that only gains post April 2008 are taxed. As such trusts can rebase their trust assets at April 2008 to ensure that no gains pre April 2008 are allocated to beneficiaries under the capital payment rules (and then subject to the remittance basis).

There is no rebasing in other circumstances though.

This is a big change and whilst beneficial for non doms will increase the paperwork and record keeping. See this article on the website for more information: How the £30,000 tax charge works after the Budget

If a non dom has overseas unremitted income and gains of less than £2,000 they won't lose the UK allowances or have to pay the £30,000 'minimum' tax charge.

They've changed the rules so that they don't catch remittances by 'connected persons' but instead just catch remittances by 'immediate family'. This has a narrower scope and just includes spouse/civil partner/unmarried partner and minor children or grandchildren.

Although you can't avoid the remittance rules by using overseas income to buy assets which are then brought into the UK, you can if the assets brought in are 'personal effects' (eg a watch or jewellery)or are valued at less than £1,000.

In the past non doms couldn't claim capital losses but now that they may be taxed on the arising basis this is to change. If they are always taxed on the arising basis there will be an automatic relief for losses as for UK domiciliaries.

If they change status year by year they can elect for losses to be offset in the years that they are taxed on the arising basis.

The draft proposals were to class you as resident in the UK for the day of arrival and departure. The new rule is to class you as resident from 6 April 2008 if you're in the UK at midnight. This supports the view taken in some Commissioners decisions and is in line with other European countries. There are also relaxed rules for transit days spent in the UK.

As the basic rate of income tax has been reduced to 20% (from 22%) they've also got rid of the 10% starting tax band.

There is though a new 10% savings rate (£2,320) of savings income. Savings income for this purpose is effectively bank & building society interest as most other income is classed as non-savings (eg earnings, pensions, taxable social security benefits, trading profits and income from property)

Dividends are treated separately and still taxed at 10% or 32.5% (effective 0% or 25%).

What's interesting though is that the savings rate isn't just a standalone rate that applies to the first £2K of savings income.

If your non-savings income exceeds the new starting rate limit of £2,320 then the starting rate for savings will not be available for the savings income. You'll then taxed at the basic rate of 20%.

So if you have earnings, rents or profits above £2,320 you won't get the benefit of the 10% band!

To be fair its the same position as under the pre April 2008 rules as savings income would be treated as the final slice of income but nevertheless it's not immediately apparent from a cursory reading of the income tax rates.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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