Offshore tax and the 2007 budget

Well, it was the 2007 budget today. There were lots of changes as you'd expect from Gordon's last budget although I don't think there were many with any real substance. The domicile changes never occured - although no surprise there, and the main highlights were the reduction in the basic rate to 20% and the reduction in the main corporation tax rate to 28%. Most of the changes won't apply until 2008 in any case, and there were enough tax drawbacks to compensate for the reductions. In particular the small companies rate of tax will be increased to 20% immediately, and then gradually to 22% over the next couple of years. In addition they've lessened the effect of the basic income tax rate reduction by getting rid of the 10% starting rate band. So for example, someone earning £15K (after the personal allowance) may think 'whehay'I'll be taxed at 20% (£3K) as opposed to 22% (£3.3K). But they'll lose the 10% starting rate worth around £230. So the net effect is £70 better off. The main changes will be the interaction of the CT and income tax rate for companies which I'll try and get into an article. Anyway in terms of offshore the 'mainstream' changes are pretty minimal. The two I've spotted are: - Allowing UK residents receiving overseas dividends to claim the 1/9 tax credit back, This aligns the rules to those applying to individuals in receipt of dividends from UK--resident companies and it means that you won't have a UK income tax liability on dividends from overseas investments if you pay tax at the lower or basic tax rate. I'm assuming that these changes are in response to the decisions of the European Court in a cases such as Manninen and Meilicke. In order to qualify you must own less than a 10% shareholding in the distributing company, and receive less than £5,000 of dividends a year from non-UK resident companies. - Proposing that individuals buying overseas property via a company won't be assessed to a benefit in kind tax charge. They're going to release legislation on this but they've already spelt out some of the limitations (eg the sole asset of the business, and no other trade). Obviously this is a bonus but to be honest most well advised individuals wouldn't have been buying an overseas holiday home via a company anyway. Aside from the benefit in kind charge or more importance is the detrimental CGT position on a future disposal. So in this context the backdown of the Revenue on the benefit in kind will have a limited impact for most. The main case where this change will be of benefit is where individuals had to buy a property via a company, eg if buying in Bulgaria or to avoid the forced succession rules in Dubai. In this case unless the company was correctly structured as a nominee company a benefit in kind charge could easily apply.