Professional Documents
Culture Documents
BUDGET NOTES
12 March 2008
Budget Notes contain technical information additional to the press notices issued by HM
Treasury with the Budget. They are not the same as press notices, which are primarily
used as brief explanations of new policy for the media, but rather contain additional, more
detailed information on the changes to tax law announced in the Budget. As such they are
designed to assist businesses that may be immediately affected by the changes, and to
provide more technical information to those with a specialist interest such as tax
consultants and advisers, City financial institutions and local HM Revenue and Customs
offices. This information is also published on the Treasury and HM Revenue and Customs
internet sites.
CONTENTS:
BN Budget Note Page
1 Modernising the Personal Tax System 5
2 Corporation Tax Main Rates 7
3 Corporation Tax Small Companies’ Rates 9
4 Simplification of Associated Companies Rules 11
5 Amendments to the Research & Development and 13
Vaccine Research Relief Schemes
6 Capital Allowances: Industrial Buildings Allowances, 15
Enterprise Zone Allowances and Agricultural Buildings
Allowances
7 Capital Allowances: Plant and Machinery Allowances: 19
Integral Features and Thermal Insulation
8 Capital Allowances: Plant and Machinery: Rate Changes 21
and New Special Rate Pool
9 North Sea Fiscal Regime 25
10 100 Per Cent First-Year Capital Allowances for Natural 29
Gas, Biogas and Hydrogen Refuelling Equipment
11 100 Per Cent First-Year Allowances for Expenditure on 31
Cars with Low Carbon Dioxide Emissions
12 Capital Allowances: Plant and Machinery: Annual 33
Investment Allowance
13 Enhanced Capital Allowances for Energy Efficient and 37
Water Saving (Environmentally-Beneficial) Technologies
14 Capital Allowances: Introduction of First-Year Tax Credits 39
15 Capital Allowances: Small Plant and Machinery Pools 41
16 Venture Capital Schemes 43
17 Community Investment Tax Relief and Banking 45
18 Enterprise Management Incentives 47
19 Trading Stock 49
20 Leased Plant or Machinery: Anti-Avoidance 51
21 Financial Products Avoidance: Disguised Interest and 55
Transferring Rights to Lease Rentals
22 Controlled Foreign Companies: Anti-Avoidance 59
23 Corporate Intangible Assets Regime: Anti-Avoidance 63
24 Capital Allowances Buying and Acceleration: Anti- 65
Avoidance
25 Employment-Related Securities: Deductible Amounts 67
26 North Sea Management Expenses 69
27 Unclaimed Assets Scheme: Tax Changes 71
28 Investment Manager Exemption 73
29 Taxation of Personal Dividends 75
30 Funding Bonds 77
31 Offshore Funds: New Tax Regime 79
32 Timing of Income Tax Payments by Unauthorised Unit 81
Trusts
33 Funds of Alternative Investment Funds 83
34 Property Authorised Investment Funds 85
35 Repeal of Obsolete Anti-Avoidance Provisions 87
36 Life Insurance Companies: Consultation Outcomes and 91
Simplification
37 Life Insurance Companies: Interest Apportionment 95
38 Insurance Premium Tax (IPT): Changes relating to 97
Overseas Insurers
39 Stamp Duty: Alternative Finance: Sukuk 99
40 Alternative Finance Arrangements 101
41 Overseas Pension Schemes 103
42 Pensions: Regulation Making Powers 105
43 Pensions: Technical Improvements 107
44 Approved Occupational Pension Schemes 109
45 Pension Savings and Inheritance Tax 111
46 Inheritance Tax: Transitional Serial Interests 113
47 Inheritance Tax (IHT) Nil-Rate Band 115
48 Capital Gains Tax: Relief on Disposal of a Business 117
(Entrepreneurs’ Relief)
49 Child Trust Fund: Voucher Requirement 121
50 Individual Saving Accounts and Northern Rock Bank 123
51 Individual Saving Accounts and other Savings Accounts: 125
Reducing the Administrative Burden
52 Gift Aid: Transitional Relief 129
53 Income of Beneficiaries Under Settlor-Interested Trusts 131
54 Stamp Duty: Changes to Loan Capital Exemption 133
55 Reduction of Stamp Duty Administrative Burden 135
56 Stamp Duty Land Tax (SDLT) Relief for New Zero-Carbon 137
Flats
57 Stamp Duty Land Tax (SDLT): Notification Thresholds for 139
Land Transactions and Rate Thresholds for Leasehold
Property
58 Stamp Duty Land Tax (SDLT): Anti-Avoidance Legislation 143
Affecting Partnerships
59 Stamp Duty Land Tax: Group Relief: Anti-Avoidance 145
60 Stamp Duty Land Tax (SDLT): Alternative Finance: Anti- 147
Avoidance
61 Greater London Authority Severance Pay 149
62 Armed Forces Council Tax Relief 151
63 Restrictions on Trade Loss for Individuals 153
64 Double Taxation Relief: Income Tax 155
65 Avoidance of Income Tax Using Manufactured Payments 157
66 Double Taxation Treaty Abuse 159
67 Tax Avoidance Disclosure Regime: Scheme Reference 161
Number System
68 Income Tax Exemptions for the Return to Work Credit, In- 163
Work Credit, In-Work Emergency Discretion Fund and In-
Work Emergency Fund
69 Company Car Benefit Tax 165
70 Employer Provided Vans: Fuel Benefit Rules 167
71 Hydrocarbon Oils: Duty Rates Changes and Rates 169
Simplification
72 New Aviation Duty Replacing Air Passenger Duty (APD) 173
73 VAT: Increased Turnover Thresholds for Registration and 175
Deregistration
74 VAT: Amendment to the Exemption for Fund Management 177
75 Indirect Tax Returns: Correction of Errors 179
76 VAT: Changes in Fuel Scale Charges 181
77 VAT: Reduced Rate for Smoking Cessation Products 185
78 VAT: Transitional Period for Claims 187
79 VAT: Option to Tax Land & Buildings 189
80 Landfill Tax: Exemption for Waste from Cleaning Up 191
Contaminated Land
81 Landfill Communities Fund 193
82 Landfill tax: Standard Rate 195
83 Aggregates Levy: Rate 197
84 Climate Change Levy: Rates 199
85 Climate Change Levy (CCL): Electricity from Coal Mine 201
Methane
86 Climate Change Levy (CCL): Climate Change Levy 203
Accounting Documents (CCLADs): Simplification
87 Energy Products Directive: Expiry of Derogations 205
88 Amusement Machine Licence Duty (AMLD): Gaming 207
Machines
89 Gaming Duty: Revalorisation of Duty Bands 209
90 Tobacco Products Duty: Rates 211
91 Alcohol Duty: Rates 213
92 Calculation of Alcohol Duty 215
93 Excise Reviews and Appeals 217
94 Waiving Interest and Surcharges for those Affected by 219
National Disasters
95 Power to Give Statutory Effect to Existing Concessions 221
96 HMRC Review of Powers, Deterrents and Safeguards: 223
Penalties for Incorrect Returns & Failure to Notify a
Taxable Activity
97 HMRC Review of Powers, Deterrents and Safeguards: 227
Compliance Checks
98 HMRC Review of Powers, Deterrents and Safeguards: 231
Payments, Repayments and Debt
99 Changes to Customs Powers 233
100 Tribunal Reform: Simplifying HMRC’s Approach to 235
Appeals
101 Tax Law Rewrite: Remittance Basis and Foreign Dividend 237
Income
102 Residence & Domicile: The Residence Test and Day 239
Counting Rules
103 Residence & Domicile: Personal Allowances and the 241
Remittance Basis
104 Residence & Domicile: Closing Loopholes in the 243
Remittance Basis
105 Residence & Domicile: Remittance Basis and Art for Public 249
Display
106 Residence & Domicile: Changes for Employment-Related 251
Securities
107 Residence & Domicile: Annual £30,000 Charge for Some 253
Users of the Remittance Basis
Press enquiries: 020 7147 0798 / 2324 / 2328 (Business Tax Desk)
020 7147 2318 / 2333 / 2319/ 0051/ 0394 (Personal Tax
Desk)
020 7147 2314 / 2331 / 0052 (Law Enforcement Desk)
07860 359544 (Out of hours)
Further information and all published documents relating to the Budget may
be found on the Internet at the following addresses:
HM Treasury: www.hm-treasury.gov.uk
3. From 2008-09, the basic rate of income tax will be reduced to 20 per cent.
The 20 per cent savings rate will be merged with the basic rate.
4. The existing 10 per cent starting rate will be abolished. A new 10 per cent
starting rate for savings will be introduced.
5. These changes reduce the main rates of income tax to two: the basic rate
and the higher rate.
8. There is no change to the 40 per cent higher rate. There are no changes
to the 10 per cent dividend ordinary rate or the 32.5 per cent dividend
upper rate.
Operative date
10. Legislation will be included in Finance Bill 2008 to make the necessary
changes to Income Tax Act 2007 (ITA) and the Income and Corporation
Taxes Act 1988.
11. For 2007-08, the basic rate of income tax is 22 per cent. It is payable
between the starting rate and basic rate limits of £2,230 and £34,600. For
2008-09, the basic rate will be reduced to 20 per cent. It will be payable
up to the basic rate limit of £36,000.
13. For 2007-08, the first £2,230 of an individual’s income is taxable at the
10 per cent starting rate.
14. Legislation in Finance Bill 2008 will abolish the 10 per cent starting rate
and introduce a new 10 per cent starting rate for savings and starting rate
limit for savings. For 2008-09, the starting rate limit for savings will be
£2,320. ITA sets out different types of income and the order in which they
are taxed. The first slice is non-savings income, which is not separately
defined in ITA but broadly covers earnings, pensions, taxable social
security benefits, trading profits and income from property. The next slice
is savings income (broadly, bank and building society interest). Dividend
income is the top slice. There are no changes to these rules for 2008-09.
15. Should an individual’s non-savings income exceed the new starting rate
limit for savings, then the starting rate for savings will not be available for
the savings income. The individual’s savings income will be charged to
tax at the 20 per cent basic rate up to the basic rate limit of £36,000. This
is unchanged from the way in which savings income is currently taxed.
However, should an individual’s non-savings income be less than the
starting rate for savings limit, then the savings income will be taxable at
the 10 per cent starting rate for savings up to the limit.
16. Legislation provides that the personal allowances are increased in line with
price inflation each year, unless overridden by the Finance Act. Finance
Bill 2008 will increase the amounts for those aged 65 and over by £1,180
above indexation. There are three levels of personal allowance: the basic
level for those aged under 65 (£5,435 for 2008-09), and higher levels for
those aged 65 to 74 (£9,030 for 2008-09) and those aged 75 and over
(£9,180 for 2008-09).
Further advice
17. If you have any questions about these changes to income tax, please
contact Paul Thomas on 020 7147 2479 (email:
paul.thomas@hmrc.gsi.gov.uk). Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to set the main rate of
corporation tax (CT) at 28 per cent on and after 1 April 2009.
3. The main rate of CT for companies’ ring fence profits will also remain at
30 per cent on and after 1 April 2009.
Operative date
5. The various CT rates are to be found in the Income and Corporation Tax
Act 1988 and are legislated annually in the Finance Act (FA). The current
provisions for the charge of CT can be found at sections 2-3 of FA 2007.
6. The current rules at section 2 of FA 2007 provide that the main rate of CT
is chargeable at 28 per cent on profits (above £1.5 million) of companies
other than ring fence profits, and 30 per cent on ring fence profits (above
£1.5 million) of companies.
Further advice
7. If you have any questions about this change, please contact your local
HMRC office. Information about Budget measures is available on the HM
Revenue & Customs website at www.hmrc.gov.uk
1. Companies with profits chargeable to corporation tax (CT) lower than the
lower relevant maximum amount (LRMA) (currently £300,000), companies
with CT profits between LRMA and the upper relevant maximum amount
(URMA) (currently £1.5m), and companies with profits from oil extraction
and oil rights in the UK and the UK Continental Shelf (‘ring fence profits’)
3. The small companies’ rate for ring fence profits will remain at 19 per cent
from 1 April 2008 and the marginal small companies’ relief fraction for ring
fence profits will remain at 11/400.
Operative date
5. The various CT rates are to be found in the Income and Corporation Taxes
Act 1988 (ICTA) and are legislated annually in the Finance Act (FA). The
current provisions for the charge of CT can be found at sections 2 and 3 of
FA 2007.
9. The changes to the small companies’ rate mean that the fraction for non-
ring fence profits will be adjusted to 7/400 and for ring fence profits the
fraction will remain at 11/400.
10. The upper and lower limits for small companies’ rate are set at section
13(3) of ICTA. These will remain unchanged.
Further advice
11. If you have any questions about this change, please contact your local
HMRC office. Information about Budget measures is available on the HM
Revenue & Customs website at www.hmrc.gov.uk
Operative date
4. The SCR rules are contained in section 13 of the Income and Corporation
Taxes Act 1988 (ICTA). The SCR has effect for companies whose annual
rate of profits does not exceed the ‘lower relevant maximum amount’
(section 13(1)). If the rate is above this amount but does not exceed the
‘upper relevant maximum amount’ a marginal relief is due (section 13(2)).
5. The upper and lower maximum relevant amounts are set out in section
13(3). Section 13(3)(b) reduces the amounts if the company has one or
more associated companies. ‘Associated company’ is defined at section
13(4) as one company controlling another or two companies being under
common control, with section 416 of ICTA being used to determine control.
In establishing control of a company, section 416(6) requires the attribution
to a person of any rights or powers held by his associates.
Further advice
9. If you have any questions about this change, please contact Simon
Moulden on 020 7147 2629 (email: simon.moulden@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
3. The UK’s SME R&D and VRR schemes are notified State aids and must
comply with European Commission (EC) Guidelines before approval will
be granted for the rate increase, and other recent amendments. In order to
achieve this, the UK is amending the schemes to prevent companies
whose most recent accounts are not produced on a going concern basis
from claiming relief. A cap is also being introduced to restrict the amount of
relief available under the SME or VRR schemes to €7.5 million per R&D
project. Large companies will have to make a declaration concerning the
incentive effect of the relief they are claiming under the VRR scheme.
Operative date
5. Schedule 20 to the Finance Act (FA) 2000 provides for tax relief for small
and medium companies undertaking qualifying R&D activities. A
50 per cent enhancement of qualifying expenditure can be claimed under
the scheme and in some circumstances this can lead to a payable credit.
9. In order to ensure that the SME and VRR schemes remain consistent with
State aid requirements, the amount of relief available under the VRR
scheme will be reduced for all companies from 50 per cent to 40 per cent.
Further advice
10. If you have any questions about this change, please contact Lynn Carroll
on 020 7147 2636 (email: lynn.carroll@hmrc.gsi.gov.uk) or Peter Faherty
on 020 7147 2700 (email: peter.faherty@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
6. The withdrawal of EZAs will have effect on and after 1 April 2011, for
businesses within the charge to corporation tax, and 6 April 2011, for
businesses within the charge to income tax.
7. IBAs are available under Part 3 of the Capital Allowances Act 2001 (CAA).
They were introduced in 1945. Their scope was subsequently increased to
include buildings and structures like tunnels, bridges, foreign plantations,
highway concessions, qualifying hotels, and commercial buildings in
Enterprise Zones.
9. ABAs are available under Part 4 of CAA and were introduced in 1946.
ABAs are generally very similar to IBAs, although not identical. For
example, ABAs are only available where the first use of the building is for
the purpose of husbandry and, subject to changes made in FA 2007,
balancing adjustments only occurred when the parties to the transfer of a
relevant interest made an election.
10. In general, the annual rate of WDAs for a person who constructs either an
industrial or agricultural building, or buys it unused, is 4 per cent of the
qualifying expenditure (the construction cost or purchase price) on a
straight-line basis. There is an exception for qualifying expenditure on
buildings in enterprise zones (EZA expenditure) which attracts an initial
allowance of 100 per cent and, where the full initial allowance has not
been claimed, a WDA of 25 per cent per annum, on a straight-line basis.
In all cases, the allowances are given to the holder of the “relevant
interest” who has incurred the qualifying expenditure on the building.
11. Prior to Budget 2007, when a person ceased to have the relevant interest
in an industrial or agricultural building within 25 years of first use (typically
when the building was sold or a leasehold interest came to an end) there
was a balancing adjustment (giving rise to either a balancing charge or a
balancing allowance) based on any difference between the residue of
qualifying expenditure (RQE) and the proceeds from the event. The
person acquiring the building would then be entitled to a recalculated
WDA, based on the expenditure that had not yet been written off (taking
into account the balancing adjustment) divided by the remainder of the
25-year period. For example, if the remainder of the 25-year period was
10 years and the RQE after the sale was £10,000, the buyer would be
entitled to a recalculated WDA of £10,000/10 = £1,000 p.a.
12. To prepare the way for final abolition, Budget 2007 announced the
withdrawal of balancing adjustments and the recalculation of WDAs.
Broadly speaking, this meant that the person acquiring the relevant
interest in the building would effectively “stand in the shoes” of the person
who had disposed of his interest, and so would effectively be entitled to
the same amount of WDAs as the previous owner.
Phasing-out rules
15. For those transitional chargeable periods the amount of WDA is the
percentage of the WDA shown in column 3 of the following table:
Financial year
beginning 1 April 2007 Tax year 2007-08 and
100 per cent
and earlier financial earlier tax years
years
Financial year
Tax year 2008-09 75 per cent
beginning 1 April 2008
Financial year
Tax year 2009-10 50 per cent
beginning 1 April 2009
Financial year
Tax year 2010-11 25 per cent
beginning 1 April 2010
Financial year
Tax year 2011-12 0 per cent
beginning 1 April 2011
17. The amount of any initial allowance will not be restricted provided it relates
to qualifying capital expenditure incurred by the EZA claimant on or before
31 March 2011 (for corporation tax) or on or before 5 April 2011 (for
income tax). However, where a business’s chargeable period spans the
relevant date and the claimant claims a WDA, the amount of the WDA will
be restricted on a time basis.
18. For EZAs, the measure will also provide that where a business disposes of
a building within seven years of first use, in respect of which either an
initial allowance or WDA(s) have been claimed, then the business will
potentially be liable to a balancing charge, notwithstanding the repeal of
Part 3 of CAA with effect from 1 April 2011 (corporation tax) or
6 April 2011 (income tax). Furthermore the special rules in sections 327 to
331 of CAA relating to certain capital value realisations will continue to
have effect on after 1 or 6 April 2011.
Anti-avoidance rule
19. Finance Bill 2008 will also include an anti-avoidance rule that will limit the
amount of a WDA on a time-apportioned basis, where property qualifying
for IBAs is transferred or sold between connected parties and the purpose,
or one of the main purposes, of the sale or transfer is the obtaining of a tax
advantage.
Draft legislation
20. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
21. If you have any questions about this change, please contact Joy Guthrie
on 020 7147 2610 (email: Joy.Guthrie@hmrc.gsi.gov.uk) or Malcolm Smith
on 020 7147 2555 (email: Malcolm.Smith3@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
3. The new classification will also include two features of a building that have
environmentally beneficial qualities, which would not normally qualify for
plant and machinery allowances. In addition, allowances for the thermal
insulation of existing industrial buildings will be extended to expenditure on
the thermal insulation of all existing buildings, used for any qualifying
business purpose, other than residential property businesses. However,
allowances on all such thermal insulation will, in future, be restricted to the
new 10 per cent rate, in place of the 25 per cent rate that currently applies
to the thermal insulation of existing industrial buildings.
Operative date
5. Capital allowances allow business to write off the costs of capital assets,
such as plant and machinery, against their taxable income. They take the
place of commercial depreciation, which is not allowed for tax. On and
after 1 April 2008 (for corporation tax), or 6 April (for income tax), the rate
of WDA will be 20 per cent per annum for general plant and machinery,
and 10 per cent per annum for “special rate” plant and machinery (BN08),
both on a reducing balance basis.
7. The legislation will also provide that, on and after the operative date (in
paragraph 4) the 10 per cent “special rate” of WDAs will have effect for
both initial and replacement expenditure on the designated integral
features, preventing a revenue deduction in those cases where this might
otherwise have been claimed. For this purpose, “replacement expenditure”
is defined as expenditure incurred where either the whole, or more than 50
per cent of the integral feature is replaced in a 12-month period. The
“more than 50 per cent” test will be determined by reference to the
replacement cost of the asset when expenditure is first incurred within the
12-month period in question.
9. The detailed design of the new integral features classification was included
in a formal consultation launched in July 2007 and draft legislation was
published in a technical note in December 2007. The draft legislation
relating to replacement expenditure on integral features will be included in
Finance Bill 2008.
Further advice
10. If you have any questions about this change, please contact Joy Guthrie
on 020 7147 2610 (email: Joy.Guthrie@hmrc.gsi.gov.uk) or Malcolm Smith
on 020 7147 2555 (email: Malcolm.Smith3@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to reduce the main rate
of writing-down allowances (WDAs) for new and unrelieved expenditure on
general plant and machinery (including cars) allocated to a pool from
25 per cent to 20 per cent. This change is part of the business tax reform
package announced at Budget 2007.
3. The legislation will also increase the rate of WDA on long-life assets from
6 per cent to 10 per cent. Any unrelieved expenditure in the long-life asset
class pool will, for chargeable periods starting on or after the operative
date, be allocated to a new, 10 per cent “special rate” pool. Long-life asset
pools will cease to exist for all accounting periods starting on or after the
operative date.
Operative date
4. The measure has effect for the calculation of WDAs for chargeable periods
ending on or after 1 April 2008 for businesses within the charge to
corporation tax and on or after 6 April 2008 for businesses within the
charge to income tax.
5. Capital allowances allow business to write off the costs of capital assets,
such as plant and machinery, against their taxable income. They take the
place of commercial depreciation, which is not allowed for tax. The general
rate of plant and machinery WDA is currently 25 per cent per annum on a
reducing balance basis. For expenditure on long-life assets the rate of
plant and machinery WDA is currently 6 per cent per annum on a reducing
balance basis.
6. The main rate of WDA will be reduced from 25 per cent to 20 per cent from
1 April 2008 (corporation tax) or 6 April 2008 (income tax). The rate
changes have effect from a fixed date, so for those businesses where the
chargeable period spans the change date a hybrid rate will have effect for
the whole of that transitional chargeable period.
7. On and after 1 April 2008 (corporation tax) or 6 April 2008 (income tax) a
new special rate pool will be introduced. With effect from those dates,
expenditure on long-life assets, thermal insulation and integral features
(see BN07) will be allocated to the new special rate pool and the rate of
WDA applicable to that pool will be 10 per cent per annum on a reducing
balance basis.
Hybrid rate
Ready reckoner
12. If you have any questions about this change, please contact Joy Guthrie
on 020 7147 2610 (email: Joy.Guthrie@hmrc.gsi.gov.uk) or Malcolm Smith
on 020 7147 2555 (email: Malcolm.Smith3@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
3. Fields that are never going to be liable for PRT will be able to elect to
come out of the PRT regime. There will also be a simplification of the PRT
returns regime to reduce the level of information companies have to
provide.
4. Capital allowances rules will change to provide 100 per cent first-year
allowances for new expenditure on long-life assets and mid-life
decommissioning. Existing long-life assets will get the same 10 per cent
writing down allowance as is proposed for non-oil and gas production
assets (see BN08).
Operative date
8. Under the current law as it relates to the capital allowances regime for
assets used for the purposes of oil and gas production in the North Sea:
• expenditure on long-life assets (those with a useful economic life of
25 years or more) and expenditure on decommissioning which is not
part of a programme of abandonment of the field (so-called ‘mid-life
decommissioning), do not qualify for the 100 per cent first-year
allowances which applies to other capital spending in oil and gas
production in the UK Continental Shelf; and
• long-life assets receive 24 per cent allowances in the first year and
6 per cent thereafter. Mid-life decommissioning receives 25 per cent
allowances on a reducing balance basis.
Further advice
12. If you have any questions about this change, please contact Mike Crabtree
on 020 7438 6576 (email: mike.crabtree@hmrc.gsi.gov.uk) or Paul Philip
on 020 7438 6993 (email: paul.philip@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
2. The 100 per cent first-year allowance (FYA) for expenditure incurred on
natural gas and hydrogen refuelling equipment due to end on 31 March
2008 will be extended for an additional five years to 31 March 2013. Its
scope has also been extended to include refuelling equipment for biogas.
Operative date
5. A scheme exists that gives 100 per cent FYAs to businesses that
purchase equipment required to refuel natural gas and hydrogen powered
vehicles. This scheme is due to end on 31 March 2008.
Further advice
7. If you have any questions about this change, please contact Nick Williams
on 020 7147 2541 (email: nicholas.williams@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
1. Businesses that purchase new, unused (not second hand) low carbon
dioxide (CO2) emission cars or lease low CO2 emission cars.
2. The 100 per cent first-year allowance (FYA) for expenditure on cars with
CO2 emissions not exceeding 120g/km is due to end on 31 March 2008.
Legislation will be introduced in Finance Bill 2008 to:
• extend the scheme for an additional five years until 31 March 2013;
• reduce the qualifying emissions threshold so that only expenditure
on cars with CO2 emissions not exceeding110g/km driven will
attract the 100 per cent FYA; and
• introduce a transitional rule to ensure that any leasing contracts
entered into before 1 April 2008 involving cars which qualified as
low emissions cars under the old rules are unaffected by the
reduction of the qualifying CO 2 emissions limit to 110g/km and
below.
Operative date
4. Capital allowances allow business to write off the costs of capital assets,
such as plant and machinery, against their taxable income. They take the
place of commercial depreciation, which is not an allowable deduction in
computing profits for tax purposes. On and after 1 April 2008 the general
rate of plant and machinery writing down allowance (WDA) will be 20 per
cent per annum on a reducing balance basis.
5. 100 per cent first-year allowances (FYAs) bring forward the time tax relief is
available by enabling a business to claim relief on the full cost of an asset
against its profits for the year in which the investment is made.
6. A scheme exists that gives 100 per cent FYAs to all businesses that
purchase new cars with CO2 emissions not exceeding 120g/km driven.
The scheme is due to end on 31 March 2008. This measure will extend the
scheme for an additional five years to 31 March 2013.
8. Low emission cars are not subject to the special rules for cars costing over
£12,000. So it has been necessary to introduce a transitional rule to
ensure that lessees who have entered into contracts to lease cars that
currently qualify as low CO2 emission cars do not find mid lease, that as a
result of the change to the definition of a low CO2 emissions car, their cars
no longer qualify as such.
Further advice
10. If you have any questions about this change, please contact Annie Carney
on 020 7147 2603 (email: annie.carney@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
5. Capital allowances allow business to write off the costs of capital assets,
such as plant and machinery, against their taxable income. They take the
place of commercial depreciation, which is not allowed for tax. On and
after 1 April 2008 (for corporation tax), or 6 April (for income tax), the rate
of writing down allowances (WDAs) will be 20 per cent per annum for
general plant and machinery, and 10 per cent per annum for “special rate”
plant and machinery, (see BN08), both on a reducing balance basis.
10. The AIA complements and does not replace any of the existing
100 per cent FYA schemes. Similarly, expenditure that qualifies for
100 per cent allowances under separate capital allowances codes (for
example, Research & Development Allowances or Business Premises
Renovation Allowances) will be unaffected by the introduction of the AIA.
Companies
11. Companies that fall within the company law definition of a group are legally
and economically inter-dependent and will therefore receive a single
allowance per group. Where a person, or persons together, control a
singleton company, but do not control any “related” company each such
company will be entitled to its own AIA.
13. The rules on “related” companies and businesses under common control
will only have effect for a very small minority of businesses. Most people
do not control a multiplicity of related businesses, and so will not be
affected by these rules. The rules will only have effect where a person (or
15. For businesses under common control, the two conditions are considered
on a financial year basis for companies and on a tax year basis for
unincorporated businesses:
• The “shared premises” condition has effect, if in a tax or financial year
(as the case may be), at the end of the chargeable period for one or
both of the businesses the activities are carried on from the same
premises.
• The “similar activities” condition has effect, if in a tax or financial year
(as the case may be), at the end of the chargeable period for one or
both of the businesses, more than 50 per cent of each business’s
activities (measured by turnover) are within the same “NACE
classification”.
17. In addition to the freedom to allocate the AIA between different types of
plant and machinery expenditure mentioned in paragraph 7, groups of
companies and “related” companies, individuals and partnerships will be
free to allocate their AIA between businesses as they see fit.
Exclusions
18. The AIA will have effect for most plant and machinery expenditure, but
certain exceptions that apply to FYAs (SME FYAs are mentioned earlier at
paragraph 6) will continue to have effect for the purposes of the AIA. The
main exception is expenditure on cars. However, unlike SME FYAs, the
AIA will be available for expenditure on long-life assets and assets for
leasing.
Further advice
20. If you have any questions about this change, please contact Joy Guthrie
on 020 7147 2610 (email: Joy.Guthrie@hmrc.gsi.gov.uk) or Malcolm Smith
on 020 7147 2555 (email: Malcolm.Smith3@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
3. This measure will add to the List of technologies covered by the schemes.
Operative date
4. The changes to the schemes will have effect on and after a date to be
appointed by Treasury order to be made prior to the Summer 2008
Parliamentary recess.
6. Two schemes exist that give 100 per cent first year allowances for
expenditure on certain energy-saving and water technologies. Following
the annual review of the qualifying technologies, the schemes will be
revised. These revisions will be made by Treasury order.
8. Following this year’s review, the Water Technology Criteria List will be
revised to include one new technology: waste water recovery and reuse
systems. The Energy Technology Criteria List will be revised to include
four additional sub-technologies: compressed air master controllers;
compressed air flow controllers; heat pump dehumidifiers and white LED
lighting. Housekeeping changes will also be made to existing criteria.
10. All revisions will be incorporated in new Lists which will be published later
in 2008. Once these have been published a Treasury Order will link them
to the schemes. The lists are available on the internet at www.eca.gov.uk
Further advice
11. If you have any questions about this change, please contact Nick Williams,
on 020 7147 2541 (email: nicholas.williams@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
5. The effect of a 100 per cent FYA is that the full cost of the plant and
machinery incurred in a period may be deducted in computing the taxable
profits of a business for that period. The new rules will expand this ECA
regime and allow companies within the charge to corporation tax to
surrender tax losses attributable to certain ECAs for a cash payment from
Government (a first-year tax credit).
8. A loss may only be surrendered for a first-year tax credit if it has not been
otherwise relieved. Where the loss could be used by the company to
off-set its own other taxable profits in the same period or surrendered as
group relief then it may not be surrendered for a first-year tax credit. Any
losses available to carry forward will be reduced by the amount of the loss
that has been surrendered under the new rules.
10. The new rules will contain a mechanism for clawing back first-year tax
credits when the ECA qualifying plant and machinery is sold within the
claw-back period. This period begins on the date the expenditure was
incurred and ends four years after the end of the period for which the tax
credit was paid.
Further advice
12. If you have any questions about this change, please contact Sue Pennicott
on 020 7147 2627 (e-mail: sue.pennicott@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
3. The measure will be a permanent feature of the plant and machinery code
and will have effect for both the main 20 per cent pool and the special rate
10 per cent pool. It will provide a significant administration burden saving,
especially to small and micro businesses, as businesses will no longer
have to calculate WDAs on very small balances for many years, as would
have been required under the current rules.
4. However, the measure will not have effect for any expenditure in ‘single
asset’ pools as they have special rules that bring them to an end at a
specified time.
Operative date
5. The measure will have effect for chargeable periods beginning on or after
1 April 2008 for businesses within the charge to corporation tax and on or
after 6 April 2008 for businesses within the charge to income tax.
6. Capital allowances allow business to write off the costs of capital assets,
such as plant and machinery, against their taxable income. They take the
place of commercial depreciation, which is not allowed for tax. On and
after 1 April 2008 (for corporation tax), or 6 April (for income tax), the rate
of WDA will be 20 per cent per annum for general plant and machinery,
and 10 per cent per annum for “special rate” plant and machinery (BN08),
both on a reducing balance basis.
Further advice
9. If you have any questions about this change, please contact Joy Guthrie
on 020 7147 2610 (email: Joy.Guthrie@hmrc.gsi.gov.uk) or Malcolm Smith
on 020 7147 2555 (email: Malcolm.Smith3@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
3. In addition, the activities of shipbuilding and coal and steel production will
be excluded from all three schemes. Companies whose trade consists to
a substantial extent of those activities will not qualify under the schemes.
As a result, investors will not be able to receive tax relief under these
schemes for investments in companies carrying on any of those activities.
Operative date
4. For EIS, the changes to qualifying activities will have effect for shares
issued on or after 6 April 2008, but the change to the investment limit can
only have effect once the European Commission has given approval.
When State aid approval is received, the new limit will be brought into
force but will have effect on and after 6 April.
5. For CVS, the changes to the qualifying activities will have effect for shares
issued on or after 6 April 2008.
6. For VCTs, the changes to the qualifying activities will have effect for
money raised on or after 6 April 2008 (but not for money derived from the
investment of money raised before that date).
7. The limit on the amount on which an individual can receive EIS income
tax relief is currently in section 158(2) of Income Tax Act 2007 (ITA).
8. Legislation will be introduced in Finance Bill 2008 to raise this limit, but the
changes will only have effect when a Treasury order is laid, following State
aid approval of the change.
10. These excluded activities are listed in the relevant legislation (for EIS –
section 192 of ITA; for VCTs – section 303 of ITA and for CVS –
paragraph 26 of Schedule 15 to Finance Act 2000). Where necessary,
more detailed explanation and definitions follow the list.
11. The proposed changes would, in each case, add three new activities –
shipbuilding, coal production and steel production – to the list, together
with definitions. The definitions are based on those provided by the
European Commission, for State aid purposes.
Further advice
12. If you have any questions about these changes, please contact David
Harris on 020 7147 2562 (email: david.harris@hmrc.gsi.gov.uk), or
Richard Kent on 020 7147 2635 (email: richard.kent@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
2. This measure will have effect for banks that invest in an accredited CDFI
under the Community Investment Tax Relief (CITR) scheme (‘the
scheme’) and that also act as banker to the CDFI.
Operative date
5. CITR is a tax relief given to individuals and companies that invest in CDFIs
that are accredited under the scheme. The amount of relief is linked to the
amount invested in the CDFI.
6. The scheme includes anti-avoidance rules such that, if the CDFI makes
payments, or otherwise returns value, to the investor during the year
preceding the investment, or the five years following it, the amount of relief
due to the investor is reduced.
8. Deposits by a CDFI into a bank with which it runs an account are not
“qualifying payments”. So if a bank invests in a CDFI under the scheme,
and the CDFI operates an account(s) with that same bank, deposits
represent a return of value under the value-received rules. Each deposit
effectively reduces the amount of the investment on which the bank can
claim CITR.
10. The change will be treated as always having had effect. This retrospection
is wholly relieving in its effect. It is intended to ensure any banks that have
previously invested in CDFIs under the scheme get the full benefit of that
investment.
Further advice
11. If you have any questions about this change, please contact Richard Kent
on 020 7147 2635 (email: richard.kent@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
4. The EMI option grant limit increase will have effect in respect of options
granted on or after 6 April 2008 and the qualifying company changes will
have effect in respect of options granted on or after the date Finance Bill
2008 receives Royal Assent.
8. The qualifying company changes will have effect in respect of EMI share
options to be granted on or after the date Finance Bill 2008 receives Royal
Assent. The changes will not have effect in respect of qualifying EMI share
options already granted under the existing rules.
9. The change to the individual EMI option grant limit will have effect in
respect of options granted on or after 6 April 2008. This will allow
qualifying companies to grant new or additional qualifying EMI options to
their employees up to the new limit of £120,000.
Further advice
10. If you have any questions about this change, please contact Chris
Murricane on 020 7147 2818 or Ellie Mayor on 020 7147 2822 or by email
to shareschemes@hmrc.gsi.gov.uk. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
TRADING STOCK
Operative date
3. The measure will have effect for all transactions whereby goods are
appropriated into or from trading stock other than in the course of trade on
or after 12 March 2008.
4. Business profits for tax purposes are generally calculated in line with
Generally Accepted Accounting Practice (GAAP). This has a statutory
basis in section 42 of the Finance Act (FA) 1998 as amended by section
103(5) of the FA 2002.
5. However, section 42(1) of FA 1998 makes clear that this basic principle is
subject to ‘any adjustment required or authorised by law in computing
profits for those purposes’. In other words, tax law, either in statute or case
law, will take precedence in situations where it differs from accountancy
practice.
6. One example in which GAAP differs from tax law in this way is where
business stock is disposed of other than by way of a trading transaction.
Under GAAP, such a transaction should be credited to the accounts at
either the cost price of the stock or at the price actually paid on the
disposal. However, for tax purposes, the GAAP treatment is overridden
and the tax computation needs to be adjusted to reflect the appropriation
from stock at market value (the market value rule’). This rule has been in
place for many years.
8. Legislation will be introduced in Finance Bill 2008 to put the market value
rule on a statutory basis. Its effect will be to preserve the current tax
treatment of non-trade appropriations of goods into and from trading stock.
9. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
10. If you have any questions about this measure, please contact Craig Mason
on 020 7147 2599 (email: craig.mason@hmrc.gsi.gov.uk) or Fiona
McRobert on 028 9093 9722 (email: Fiona.mcrobert@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
5. The measure will generally have effect for transactions entered into on or
after 13 December 2007. Some aspects of the measure, as explained
below, will have effect on and after 12 March 2008.
Lease premiums
9. This measure will ensure that, with the exceptions described below,
payments will be taxed as income of the lessor where they are not
otherwise taxable as income or as a capital allowances disposal receipt,
and which either:
• are made by or on behalf of the lessee to the lessor or to another
person on the lessor’s behalf and are paid in connection with the grant
of a lease or in other specified circumstances; or
• reduce the rentals otherwise payable under the lease.
10. Where payments are made on or before 11 March 2008, the new rules will
have effect only for payments made in respect of leases of plant or
machinery that are not leased with other assets.
11. Where payments are made on or after 12 March 2008 the rules will also
have effect for plant or machinery (other than fixtures) leased with other
assets but only to the extent that:
• it is reasonable to attribute the capital payment to that plant or
machinery; and
• if the payment were income, it would not be taxable under Schedule A.
12. These rules are designed to ensure that payments associated with typical
real property leases will not be affected by the measure.
14. The measure will also counter attempts to reduce or avoid a disposal
value for capital allowances and chargeable gains purposes on the
granting of a long funding finance lease.
16. This measure will ensure that the disposal value is not reduced where
rentals are receivable on the day on which the lease is granted. In
addition, where the lease is granted on or after 12 March 2008, the
measure will ensure that the disposal value is not reduced by matching the
leased asset with liabilities in a way that means the lessor’s net investment
in the lease is reduced or eliminated. From that date, the disposal value
will be determined on the basis that the lessor has no liabilities.
17. The draft legislation published on 9 October 2007 provided that, in the
case of a sale and finance leaseback, the finance lease should not be
treated as a short lease. In most cases, this means it will be treated as a
long funding lease. There may be more than one finance lease in the
leaseback arrangements and, with effect on and after 12 March 2008, it
will be made clear that none of these finance leases should be treated as
a short lease, so no lessor in the leaseback arrangements is entitled to
claim capital allowances.
19. Following the introduction of this measure, section 228B of CAA, which
restricts the amount that a lessee may deduct in a lease and finance
leaseback, only has effect in exceptional circumstances. Nevertheless,
with effect from 12 March 2008, an amendment will be made that will
ensure the rules have effect where the leaseback is to a person connected
to the head lessor.
Further advice
20. Draft legislation, covering mismatched lease chains and lease premiums,
was published on 13 December 2007.
21. If you have any questions about this change, please contact Paul Lane on
020 7147 2637 (email: paul.lane@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
2. Companies leasing plant or machinery that sell the right to lease rental
income.
5. In addition, the measure will counter notified schemes that are intended to
allow lessors of plant or machinery to dispose of the right to taxable
income in exchange for a tax-free sum. The changes will ensure that
where the right to receive rentals is transferred the value receivable will be
taxed as income.
Operative date
Disguised interest
11. Draft legislation and explanatory notes are available on HMRC’s website.
Further advice
12. If you have any questions about the changes regarding disguised interest,
please contact Richard Rogers on 020 7147 2625 (email:
richard.rogers@hmrc.gsi.gov.uk) or Richard Thomas on 020 7147 2558
(email: richard.thomas@hmrc.gsi.gov.uk). If your question relates to the
transfer of a right to lease income, please contact Paul Lane on 020 7147
2637 (email: paul.lane@hmrc.gsi.gov.uk). Information about Budget
measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
4. HM Revenue & Customs (HMRC) does not believe that these schemes
work but these measures will put the question beyond doubt and close off
opportunities for other similar avoidance schemes.
Operative date
5. The changes will have effect on and after 12 March 2008. For changes
that are relevant to an accounting period, the measure will provide that, for
accounting periods that straddle that date, the accounting period will be
split into periods before and from that date with the changes only having
effect to the second part of that accounting period.
7. In one avoidance scheme, an offshore trust owns more than 50 per cent of
the shares in an overseas company. The users of the scheme claim that
the company is not controlled by UK residents even though the UK
residents who hold the remaining shares retain the right to receive all of
the company’s profits.
9. A foreign company is exempt from the CFC rules if it satisfies one of five
exemptions. One exemption is the exempt activities test. This exemption is
made on the basis that a company that carries on genuine trading
activities from a business establishment in the territory in which it is
resident overseas can reasonably be assumed not to exist to artificially
divert profits from the UK. The test is set out in paragraphs 5 to 12A of
Schedule 25 to ICTA. Paragraphs 6, 12 and 12A provide that for holding
companies to qualify, a minimum of 90 per cent of their gross income must
come, generally by way of dividends, from companies they control that are
carrying out exempt activities.
10. In a further avoidance scheme, the users seek to circumvent the test for
holding companies by arranging for non-dividend income (usually interest)
to accrue in a partnership in which the holding company has a major
interest. They claim that this income does not form part of the gross
income of the company.
11. This measure will put beyond doubt that the gross income of a CFC
includes any income to which it is entitled (including the CFC’s share of
any partnership income) and any trust income in respect of which the CFC
is either settlor or beneficiary.
12. In order to compute the CFC charge, the chargeable profits of the CFC
have first to be calculated and those chargeable profits are then
apportioned to the UK resident companies with an interest in the CFC.
Chargeable profits are computed under section 747(6) of ICTA which
broadly applies the rules of corporation tax to the CFC, except that
chargeable gains are excluded.
18. Any business, whether in the financial sector or otherwise, that would like
the certainty of comfort that the motive test will effect may seek an
advance clearance from HMRC. More information about the clearance
procedure and how to apply may be found in the HMRC International
Manual at: www.hmrc.gov.uk/manuals/intmanual/INTM214120.htm
Further advice
19. If you have any questions about this change, please contact Ian Wright on
020 7147 2701 (email: Ian.Wright1@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to clarify that the effect
of the ‘related party’ rules in the corporate intangible assets regime is
unaffected by any administration, liquidation or other insolvency
proceedings or equivalent arrangements that any company or partnership
may be involved in.
Operative date
3. The measure will have effect for transactions made in respect of intangible
assets (including royalties becoming payable) on and after 12 March 2008.
6. This means that, for the purposes of paragraph 95, all the various rules
which are relevant to the tests set out in that paragraph must have effect
disregarding any insolvency proceedings involving a company or
partnership, or equivalent arrangements. Equivalent arrangements include
those where any company or partnership is the subject of a procedure in
another law or territory which is equivalent to insolvency arrangements in
the United Kingdom. Such proceedings or arrangements must be
disregarded whether the company or partnership subject to them is solvent
or insolvent, and whether the company or partnership is one of the related
parties, or another company or partnership whose circumstances could be
Further advice
7. If you have any questions about this change, please contact Kerry Pope
on 020 7147 2617 (email: kerry.pope@hmrc.gsi.gov.uk) or Grusheka
Lowton 020 7147 2573 (email: grusheka.lowton@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
3. The measure will have effect, for example, where a loss-making company
is sold to an unconnected profitable group prior to the trade (rather than
the company) being sold to a third party a short time later. The measure
will prevent the sale of the trade leading to a balancing allowance in the
hands of the profitable group.
Operative date
4. The measure will have effect where a company sells its trade, and so
ceases to carry it on, on or after 12 March 2008.
8. The measure will counter this avoidance. It will have effect where a trade
ceases to be carried on by one company and begins to be carried on by
another company where the cessation:
• would generate a balancing allowance; and
• is part of arrangements the main purpose, or one of the main purposes
of which, is to create that balancing allowance.
9. The measure will also have effect where the transfer of part of a trade
would create a balancing allowance.
10. Where the measure has effect the transfer of the trade will be treated as
falling within section 343(2) of ICTA. This will mean, for capital allowances
purposes, treating the trade as if it had been continuously carried on. No
balancing allowance will be generated and the capital allowances will
become available to the person buying the trade for the long term.
11. This measure will not affect the transfer of a trade, even where a balancing
allowance arises, unless it is part of wider arrangements designed to
create a balancing allowance.
12. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
13. If you have any questions about this change, please contact Paul Lane on
020 7147 2637 (email: paul.lane@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
4. The measure will have effect for all relevant events and transactions
occurring on or after 12 March 2008.
6. In all of the above provisions, the use of the phrase ‘amounts that
constitute(d) earnings’ might be interpreted to cause a lower amount than
intended to be chargeable to income tax, CGT or corporation tax. The use
of this phrase was part of the rewriting of ICTA into ITEPA, which was not
intended to change the meaning of the source legislation in ICTA.
8. The measure will have effect for all relevant events and transactions
occurring on or after 12 March 2008. Changes to be made to section
149AA of TCGA applying to restricted and convertible securities; section
428 of ITEPA (as originally enacted), applying to conditional interests in
shares; section 428 of ITEPA, applying to restricted securities; and section
480, applying to employment-related securities options will also have
effect for ERS acquired before 12 March 2008 where the relevant event
and transaction occurs on or after that date.
9. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
10. If you have any questions about this change, please contact Claire Talbot
on 020 7147 2867 or Jon Clarke on 020 7147 2157 (email:
shareschemes@hmrc.gsi.gov.uk). Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Companies that produce oil and gas in the UK and on the UK Continental
Shelf (UKCS) and have relieved expenses of management against ‘ring
fence’ profits.
Operative date
4. Current tax law operates a ring fence around the profits of a company’s oil
and gas production in the UK and on the UKCS. The profits are set apart
from any other activities the company undertakes and losses arising
outside the ring fence cannot be used to reduce ring fence profits.
6. Some oil and gas companies have arranged their affairs in order to offset
expenses of managing an investment business against their ring fence
profits. These arrangements seek to undermine the integrity of the ring
fence rules.
8. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
9. If you have any questions about this change, please contact Mike Crabtree
on 020 7438 6576 (email: mike.crabtree@hmrc.gsi.gov.uk) or Paul Philip
on 020 7438 6993 (email: paul.philip@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
4. The power to introduce secondary legislation will have effect on and after
the date that Finance Bill 2008 receives Royal Assent. The capital gains
tax changes in Finance Bill (set out in paragraph 8 below) will have effect
on and after a date to be appointed by Treasury order, which will be the
same date as when the Scheme comes into effect. The tax changes
made by secondary legislation will also have effect on and after the date
that the Scheme comes into effect.
5. Section 851 of the Income Tax Act 2007 requires banks or building
societies to deduct income tax at 20 per cent when a payment of interest
on deposits is made. This measure will introduce a power to make a
secondary legislative change to ensure that the obligation to deduct tax in
respect of interest on dormant account balances within the ambit of the
Scheme only has effect if, and when, a customer reclaims their dormant
account balance.
8. Disposals of certain types of bank and building society accounts can give
rise to capital gains liability for the account holder. This measure will
introduce a primary legislative change to the Taxation of Chargeable
Gains Act 1992 to ensure that where dormant accounts within the ambit of
the Scheme are transferred to the body that will administer them under the
Scheme there will not be a disposal for capital gains tax purposes. A
disposal will only occur if, and when, the customer makes a reclaim of
such deposits.
Further advice
9. If you have any questions about this change, please contact Aidan Reilly
on 020 7147 2575 (email: aidan.reilly@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
4. The first change listed in paragraph 2 above will have effect on or after the
date that Finance Bill 2008 receives Royal Assent, but with a saving
provision to ensure that the existing definition of an “investment
transaction” has effect until replaced by an order to be made after that
date. The second change will have effect for the tax year 2008-09 and
subsequent tax years and accounting periods ending on or after the date
that Finance Bill 2008 receives Royal Assent.
6. The legislation underpinning the IME is at section 127 of, and Schedule 23
to, the Finance Act (FA) 1995, section 152 of, and Schedule 26 to, FA
2003 and sections 818 to 828 Income Tax Act 2007. This primary
legislation is supplemented by secondary legislation in four sets of
Regulations: Statutory Instruments 2003/2172, 2003/2173, 2007/963 and
2007/964.
7. The IME only has effect for transactions meeting the statutory definition of
an “investment transaction”. The types of transaction coming within that
definition are currently listed in different parts of the primary and
secondary legislation, and there is a statutory power to add to those lists
by making new Regulations.
Achieving proportionality
11. This measure will remove that condition and produce a more proportionate
outcome. All transactions that meet the qualifying conditions will qualify
for the IME and if there are any non-qualifying transactions it will only be
those transactions that will be exposed to UK tax.
Further advice
12. If you have any questions about this change, please contact Lee Harley on
020 7147 2597 (email: lee.harley@hmrc.gsi.gov.uk), Mike Hogan on
020 7147 2655 (email: mike.hogan@hmrc.gsi.gov.uk), or Andrew Martyn
on 020 7147 3342 (email: andrew.martyn@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
5. These changes will have effect on and after 6 April 2008 and 6 April 2009
respectively.
8. The legislation in Finance Bill 2008 will extend the non-payable tax credit
of one ninth of the distribution to UK resident individuals and UK and other
EEA nationals in receipt of dividends from non-UK resident companies, if
they own less than a 10 per cent shareholding in the distributing non-UK
resident company. The other previously announced condition, that in total
the individual must receive less than £5000 of dividends a year from non-
UK resident companies, will not be introduced.
Further advice
10. If you have any questions about this change, please contact Andrea
Pierce on 020 7147 2591 (email Andrea.Pierce2@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
FUNDING BONDS
3. The legislation will allow HMRC to request that the bond issuer divides, if
necessary, any funding bond held by HMRC so that the repayment claim
can be satisfied using part of the funding bond.
Operative date
5. The current law does not address how a repayment claim in respect of tax
treated as paid to HMRC by a funding bond should be handled and this
has led to uncertainty. In practice, HMRC has satisfied the repayment
claim using a funding bond where this has been feasible.
7. The legislation will also insert a new section, section 940A into ITA. If the
Commissioners do not hold funding bonds in denominations suitable for
satisfying the repayment claim, this measure will allow the Commissioners
to request that the funding bond issuer divides the funding bonds as
required so that the repayment claim can be satisfied
9. If you have any questions about this change, please contact Lesley
Hamilton on 020 7147 2564 (email: lesley.hamilton@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
1. Managers of, and investors in, overseas based funds such as open-ended
investment companies, unit trust schemes and similar arrangements.
Operative date
5. An ’offshore fund’ is any type of fund that is resident outside the United
Kingdom or established under foreign law and would, if it were established
in the United Kingdom, constitute a collective investment scheme for the
purposes of the Financial Services and Markets Act 2000 (FISMA).
7. This measure will mean that, in order to retain CGT treatment for investors
disposing of an interests in the fund, an ‘offshore fund’ will no longer have
to make a distribution but will instead be able to ‘report’ income to
investors who will then be subject to tax on the reported income.
9. It is expected that the conditions for obtaining the new qualifying fund
status will be less onerous, and the test required for this will only be
applied at the outset (instead of, as now, annually). It is also envisaged
that minor failures to keep to the conditions will not result, as they do at
present, in the fund being removed retrospectively from the more
favourable regime.
Further advice
10. If you have any questions about this change, please contact John
Buckeridge on 020 7147 2560 (e-mail: john.buckeridge@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. The changes will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
4. Under section 964(5) of ITA, trustees of unauthorised unit trusts are only
required to pay to HMRC the income tax they deduct from their unit
holders in any year at the end of the following tax year (so for example, for
tax deducted in the tax year 2007-08 need only be paid at the end of
January 2009).
5. This measure will repeal section 964(5). With effect from the tax year
2008-09 and all subsequent tax years, trustees of unauthorised unit trusts
will be required to make payments on account of the tax due to HMRC on
the 31 January and 31 July of one year, with a balancing payment or claim
made on 31 January the following year. (For example, for the tax year
2008-09 payments on account will be due on 31 January 2009 and
31 July 2009, with a balancing payment on 31 January 2010). This will
reinstate the position that existed prior to the unintentional changes
introduced by ITA.
Further advice
6. If you have any questions about this change, please contact Liz Foster on
0114 2969 377 (email: liz.foster@hmrc.gsi.gov.uk) or Sandra Whyman on
0114 2969 688 (email: sandra.whyman@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
2. Regulations will be laid to provide an additional tax regime for AIFs which
invest into non-distributing offshore funds. The regulations have been
drafted to remove tax as a barrier to the introduction of the new Financial
Services Authority (‘FSA’) regulatory regime titled ‘Funds of Alternative
Investment Funds’. The changes will enable certain funds to elect for a tax
treatment as “Tax FAIFs”, which will move taxation on offshore income
gains from the fund to its investors.
Operative date
3. The changes will have effect on and after a date to be set by Treasury
order, the date to be determined by the date the FSA regulatory changes
become effective.
7. If you have any questions about this change, please contact John
Buckeridge on 020 7147 2560 (e-mail: john.buckeridge@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
3. New regulations for AIFs will be introduced, providing a tax regime for
investment into real property and certain property companies, which will
enable certain AIFs to elect for a tax treatment that will move the point of
taxation from the fund to its investors.
Operative date
8. To qualify for the new regime Property AIFs will have to meet certain
conditions, including:
• incorporation as an open-ended investment company (subject to
Financial Services Authority regulation);
• carry on a property investment business (amounting to at least
60 per cent of the business);
• a ‘genuine diversity of ownership’ condition, so that the fund is not
limited to or targeted at only a few specified investors; and
• limits on the holdings of corporate investors and on the type and
amount of loan financing in the fund.
Further advice
10. If you have any questions about this change, please contact John
Buckeridge on 020 7147 2560 (e-mail: john.buckeridge@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. This measure will have effect for individuals and exempt bodies on and
after 6 April 2008, and for companies for accounting periods beginning on
or after 1 April 2008.
Dividend buying
6. There have been a number of developments in tax law since 1955 which
have meant that share-dealers are no longer exempt from tax on dividends
and exempt bodies cannot reclaim any tax or tax credits in relation to
dividends.
Transactions in securities
Employment securities
13. In 1972 the first legislation relating to employment related shares was
introduced. This legislation was replaced from October 1987 by legislation
in Finance Act 1988, but became sections 138 and 139 of ICTA in relation
to shares, etc., acquired before October 1987.
Further advice
15. If you have any questions about this change please contact Richard
Thomas on 020 7147 2558 (email: richard.thomas@hmrc.gsi.gov.uk) in
relation to all the above measures apart from employment securities. If
you have questions about the employment securities change,
please contact Claire Talbot on 020 7147 2867 (email:
claire.talbot@hmrc.gsi.gov.uk). Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
4. The new financing rules will have effect for periods of account beginning
on or after 1 January 2008.
5. The rules for transfers of tax exempt other business between different
types of friendly society will have effect for transfers taking place on or
after the date that Finance Bill 2008 receives Royal Assent.
6. The changes to the foreign asset rules will have effect for periods of
account beginning on or after 1 January 2008 and ending on or after
12 March 2008, subject to the ability to elect for these rules to have effect
for 2007.
11. The term “foreign currency assets” (FCAs) was introduced by FA 2007 to
describe assets backing overseas business, the income and gains from
which are directly referable to gross roll-up business. To qualify as FCAs,
there is a requirement that relevant assets must be certified as FCAs
within 3 months of the company’s year end. Operational experience in
dealing with FCAs has brought to light some difficulties arising from
applying the rules in practice. Legislation will be introduced in Finance Bill
2008 to amend the definition of FCAs (which will become “foreign business
Further advice
12. If you have any questions about these changes, please contact Richard
Thomas on 020 7147 2558 (email: richard.thomas@hmrc.gsi.gov.uk) or
Colin McHardy on 020 7147 2614 (email colin.mchardy@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
5. Even though the deposit back is entirely related to GRB, interest paid on
the deposit back is apportioned between GRB and basic life assurance
and general annuity business (BLAGAB). This means that a significant
proportion of the deposit back interest may be relieved against BLAGAB
income and gains. For a variety of reasons this may result in an
unintended tax advantage for companies.
6. Finance Bill 2008 will introduce legislation to provide that interest paid on
deposits back from re-insurers will be wholly allocated to the category or
categories of business reinsured by the contract giving rise to the deposit
back.
7. If you have any questions about this change, please contact Richard
Thomas on 020 7147 2558 (email: richard.thomas@hmrc.gsi.gov.uk) or
Colin McHardy on 020 7147 2614 (email colin.mchardy@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
3. Overseas insurers writing taxable risks located in the UK will still need to
register for insurance premium tax (IPT), but will be able to choose
whether or not to appoint an agent to act for them in the UK. This agent
will not be jointly and severally liable for the tax due by the insurer.
Operative date
4. The changes will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
Further advice
8. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. These changes will have effect for transfers of loan capital on or after the
date that Finance Bill 2008 receives Royal Assent.
Further advice
6. If you have any questions about this change, please contact Nicky Rass
on 020 7147 2802 (email: Nicola.Rass@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
3. The amended power will have effect on and after the date that Finance Bill
2008 receives Royal Assent.
4. Section 98 of Finance Act (FA) 2006 permits amendments to the tax rules
on alternative finance arrangements in Chapter 5 of Part 2 to FA 2005 to
be made by order. This power allows for the introduction of provisions
relating to new arrangements, but does not allow for amendments to the
rules on existing arrangements. This measure will introduce a further
power to permit amendments to existing tax rules on alternative finance
arrangements to be made by secondary legislation.
Further advice
5. If you have any questions about this change, please contact Tony Sadler
on 020 7147 2608 (e-mail: tony.sadler@hmrc.gsi.gov.uk) or Sue Davies
on 020 7147 2565 (e-mail: sue.davies@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
2. The measure will ensure those funds in non-UK pension schemes that
have received UK tax relief are appropriately identified for the purposes of
UK tax limits and charges on benefits equivalent to those for registered UK
pension schemes having effect.
Operative date
3. For non-UK money purchase pension schemes, the measure will have
effect for employer contributions paid on or after 12 March 2008.
4. For non-UK defined benefit (i.e. final salary) pension schemes the
measure will have effect on and after 6 April 2008.
5. Migrant workers in the UK and their employers can obtain tax relief on
contributions to non-registered pension schemes based outside the UK. In
order to apply appropriate UK tax controls on reliefs equivalent to those for
registered pension schemes, it is necessary to work out how much UK tax
relief has been received on the individual’s pension fund.
6. Under the law, the larger the employer contribution the lower the
proportion of an individual’s pension fund is treated as having received UK
tax relief.
7. This measure will ensure that the amount of the employer’s contribution
will not affect the calculation of the proportion of the fund that is subject to
UK tax rules.
Further advice
8. If you have any questions about this change, please contact Pensions
Helpline on 0845 600 2622. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
4. This measure will have effect on and after the date that Finance Bill 2008
receives Royal Assent. However the regulations made under this power
may have retrospective effect where this will not disadvantage anyone
affected.
5. The simplified tax regime for registered pension schemes was introduced
in Finance Act 2004 and has effect on and after 6 April 2006. The Act lists
what payments a registered pension scheme is authorised to make to a
member of a scheme. All other payments to a member are unauthorised
and taxable at a rate of up to 70 per cent of the payment.
7. Finance Bill 2008 will provide for changes to the existing power to enable
these payments to be taxed in the same way as other authorised
payments made by a registered pension scheme. Provision will also
enable retrospective treatment where this will not disadvantage anyone
affected.
Further advice
9. If you have any questions about these changes, please contact Pensions
Helpline on 0845 600 2622. Information about Budget measures is
available on the HM Revenue & Customs website at HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
4. The amendments for small annual increases in pensions and rounding will
be backdated to have effect on and after 6 April 2006 (A Day). The change
to the RPI reference month will have effect on and after 6 April 2008.
5. The tax rules for pension savings are set out in Part 4 of Finance Act
2004.
6. Three small changes will be made to the draft legislation published at 2007
PBR following representations. These will provide further easements to the
rules for how the lifetime allowance test benefit crystallisation event 3
(BCE3) operates for pension increases, whilst maintaining the integrity of
the test:
• A change to allow pension increases of £250 per annum or less to be
exempt from the BCE3 test;
• A provision for rounding so that once the pension increase has been
awarded (irrespective of the size of increase or whether it is paid
monthly or weekly) it can be increased to the nearest whole number
without the need for a further test; and
• A change to the RPI reference month to allow schemes to use the
figure for RPI for any month which is within 12 months before the
increase in pension.
7. If you have any questions about this change, please contact Pensions
Helpline on 0845 600 2622. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
5. Following changes in the legislation on and after 1 April 2004 which had
effect on and before 5 April 2006, the express provision preventing a tax
deduction for expenses shown in the profit and loss account was removed.
This deletion did not reflect a change of Government policy and had no
practical impact, as the overall effect and application of the legislation was
still to allow only cash contributions.
6. For the prevention of doubt, legislation will be included in Finance Bill 2008
which will confirm that during the period between 1 April 2004 and
5 April 2006, tax relief for employer contributions to registered pension
schemes is restricted to the cash paid in the relevant accounting year.
Further advice
7. If you have any questions about this change, please contact Martyn
Rounding on 020 7147 2821 (email: martyn.rounding@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
3. This measure was announced at the 2007 Pre-Budget Report (PBR). Draft
legislation for the measure was published at that time, to which there have
been minor amendments.
Operative date
4. Operative dates are outlined for the various measures in the paragraphs
below.
8. Sections 151A to 151C of the Inheritance Tax Act 1984 (IHTA) give effect
to similar provisions on ‘alternatively secured pension’ (ASP) funds to
those set out in paragraph 7 above. Again, any nil-rate band that has not
been set against the estate may be set against the IHT charges on ASP
funds. To bring these provisions into line with those for scheme pensions
and annuities, Finance Bill 2008 will ensure that any remaining nil-rate
band may be used only once against the IHT charges arising on ASP
funds. This change will have effect when a member dies on or after
6 April 2008.
9. PBR Note 14 sets out details of changes that will be made to restore IHT
protection to UK tax-relieved pension savings in overseas pension
schemes. The provisions in Finance Bill 2008 will give IHT protection to
pension savings which have had UK tax relief and also to all savings in
certain overseas pension schemes. The IHT protection will apply to funds
in overseas pension schemes that are tax-recognised and regulated in the
country in which they are established. Or, if there is no system for tax
recognition or regulation in that country, then the funds must be used to
provide a pension income for life.
10. The change to the IHT rules for overseas pension schemes will have effect
on or after 6 April 2006.
Further advice
11. If you have any questions about the IHT changes in paragraphs 6 to 10
above, please contact the Inheritance Tax & Probate Helpline on
0845 3020900. If you have any questions about the other pensions
change in paragraph 6 above, please contact the Pensions Helpline on
0845 600 2622. Information about Budget measures is available on the
HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
4. Schedule 20 to the Finance Act 2006 changed the IHT rules for IIP trusts.
It included a transitional period from 22 March 2006 to 5 April 2008 to
enable trustees to reorganise trusts set up on or before 21 March 2006
without being subject to the new rules.
6. The legislation will also ensure that the new rules will have effect as
intended where an IIP trust is replaced after the transitional period with a
new IIP trust for either the same or a different beneficiary.
7. In addition, this measure extends the transitional period so that it will now
end on 5 October 2008.
8. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
9. If you have any questions about this change, please contact the
Probate/IHT Helpline on 0845 3020 900. Information about Budget
measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
4. The change to the CGT provision will have effect on and after 6 April 2008.
5. Section 274 of the Taxation of Capital Gains Act 1992 (TCGA) provides
that where the value of an asset in a deceased person’s estate has been
ascertained for IHT purposes, that value also has effect for CGT purposes.
The value of an asset transferred from a deceased’s estate will not be
determined for CGT purposes until a subsequent disposal of that asset. So
generally, where the value of an asset needs to be ascertained for IHT
purposes, this will occur on the death of the individual and so before the
value of that asset is ascertained for CGT purposes.
6. In some cases the changes announced at 2007 PBR will mean that, to
calculate how much nil-rate band can be transferred from the first
deceased spouse’s estate, the value of assets in that estate will need to
be determined when the second spouse dies. In these circumstances, if
the value of the asset differs from any already agreed for CGT purposes,
section 274 of TCGA would require CGT to be recalculated on the basis of
the value agreed for IHT purposes.
Further advice
8. If you have any questions about this change, please contact the Inheritance
Tax & Probate Helpline on 0845 3020900. Information about Budget
measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
3. The first £1 million of gains that qualify for relief will be charged to CGT at
an effective rate of 10 per cent. Gains in excess of £1 million will be
charged to CGT at the rate of 18 per cent.
6. This measure will have effect for qualifying disposals made on or after
6 April 2008. Transitional provisions will also allow relief to be claimed in
certain circumstances where gains that have been deferred from
disposals made on or before 5 April 2008 become chargeable after that
date.
8. For the tax year 2008-09, there will be a single rate of capital gains tax set
at 18 per cent as announced at 2007 PBR. The rate will have effect for
individuals, trustees and personal representatives. PBR Note 17 sets out
details of the proposals.
9. In addition on and after 6 April 2008, where the new entrepreneurs’ relief
is available it will reduce by 4/9ths the gains for which relief is due. Where
a number of gains and losses arise on the disposal of a business, the
reduction is applied to their aggregate. The net amount of gains after relief
will then be liable to CGT at the new 18 per cent single rate, resulting in
an effective 10 per cent rate (5/9ths x 18 per cent). An individual will be
entitled to entrepreneurs’ relief on gains of up to £1 million on qualifying
disposals. This £1 million limit is a “lifetime” limit. It will be necessary to
keep a record of the amount of gains in respect of which the relief is
claimed to work out the relief due on any later qualifying disposals.
10. There will be no minimum age limit for entrepreneurs’ relief. And
entrepreneurs’ relief will be available where the relevant conditions are
met throughout a qualifying period of one year.
11. The relief will have effect for gains arising on the disposal by an individual
of the whole or part of a qualifying business. A business qualifies if it is a
trade, profession or vocation (including the commercial letting of furnished
holiday accommodation in the UK, but not other types of property letting
business). The individual must have owned the business, or be a
member of a partnership that owns the business, throughout the one-year
period ending with the disposal.
15. The relief will have effect for gains on disposals of shares in (and
securities of) a trading company (or the holding company of a trading
group) provided that throughout a one-year qualifying period the individual
making the disposal:
• is an officer or employee of the company, or of a company in the same
group of companies; and
• owns at least 5 per cent of the ordinary share capital of the company
and that holding enables the individual to exercise at least 5 per cent
of the voting rights in that company.
16. Where the company (or group) does not cease to trade, the one-year
qualifying period is the year ending on the date the shares or securities
are disposed of. Where the company (or group) ceases to trade before
the disposal of the shares or securities, the one-year qualifying period
ends on the date trading ceased, and the disposal must be made within
three years of the date of cessation.
17. The terms “trading company”, “holding company” and “trading group” will
have the same meaning as they do for the purposes of taper relief on
business assets. There will be no requirement to restrict the gains
qualifying for relief by reference to any non-trading assets held by the
company (or group).
“Associated disposals”
Deferred gains
21. Where QCBs are received in the exchange, entrepreneurs’ relief will be
claimable in determining the amount of gain to be deferred until the QCBs
are disposed of. In other cases people may elect to disapply the normal
CGT rules, so that gains will arise at the time of the exchange and the
relief will be claimable on those gains.
22. Similarly, where gains are deferred on or after 6 April 2008 as a result of
an investment in qualifying shares under the Enterprise Investment
Scheme (EIS), entrepreneurs’ relief will be claimable in determining the
amount of gains to be deferred.
23. Transitional rules will also allow entrepreneurs’ relief to be claimed where
gains that have been deferred on or before 5 April 2008 under the rules
for exchanges of shares, etc., for QCBs, or on investment under the EIS
or in a Venture Capital Trust (VCT) become chargeable on or after 6 April
2008. The relief will be claimable if the disposal giving rise to the gain
that has been deferred would have qualified for the relief if the relief had
been in force at the time of that disposal.
24. A further document has been published today on the HMRC website
containing examples of how the relief will work. Detail about the relief can
be found in the draft legislation and explanatory note available on the
HMRC website. Draft legislation relating to the changes to CGT
announced at Pre-Budget Report is also available on the HMRC website.
Further advice
25. If you have any questions about this change, please contact the Capital
Gains Tax Team on 020 7147 2764 (email:
capitalgains.taxteam@hmrc.gsi.gov.uk). Information about Budget
measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk.
Operative date
3. The new account opening rules will have effect on and after 6 April 2009.
5. This measure will remove the need for the voucher to be collected by CTF
providers and distributors as part of the account opening process.
6. Instead of the parent handing over the voucher, CTF providers and
distributors will be able to open accounts using essential information from
the CTF voucher provided by the customer, such as the unique reference
number, the child’s date of birth and the voucher expiry date. This change
will allow, for example, telephone and internet applications for CTF
accounts to be made in a single paperless transaction without the need for
the customer to post the voucher separately.
8. The measure allows those CTF providers and distributors who wish to
continue collecting the vouchers from parents to do so.
10. If you have any questions about this change, please contact Anna Caffyn
on 020 7147 2855 (email: anna.caffyn@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
4. Under the powers in sections 694 to 701 Income Tax (Trading and Other
Income) Act 2005 (ITTOIA), The Individual Savings Account Regulations
1998 (SI 1998 No 1870 as amended) provide the rules and regulations for
the ISA scheme.
8. The new rule will apply only to people who withdrew funds from their
Northern Rock ISA between 13 and 19 September 2007, and the
re-investments have to be made no later than 5 April 2008. This means
that the changes to the ISA regulations described above will need to have
retrospective effect, but the existing powers in ITTOIA do not explicitly
provide for this.
9. So, in order to make the necessary changes to the ISA Regulations the
powers in ITTOIA will need to be amended, and legislation will be
introduced in Finance Bill 2008 to provide for this. The retrospective power
being introduced in the Finance Bill is to have effect only if the use of the
power is to the benefit of the taxpayer.
10. The amending ISA Regulations, will be laid as soon as possible after the
date that Finance Bill 2008 has received Royal Assent.
Further advice
12. If you have any questions about this change, please contact David Ensor
on 0207 147 2838 (email: david.ensor@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
2. This measure will remove the requirement for ISA managers to submit
quarterly returns of statistical information to HMRC (detailing subscriptions
received) on and after 6 April 2008. Instead, ISA managers will make an
annual statistical return detailing subscriptions received after the end of
each tax year. The requirement on ISA managers to make an annual
‘market value’ return will remain.
4. Instead, ISA managers and financial institutions that choose not to retain
forms will be required to record the information contained in the application
and a send a written copy of confirmation to the customer. The original
application can then be destroyed.
Changes to Regulations
5. The existing regulations which cover the operation of the TDSI will be
consolidated.
7. For ISAs, these changes will have effect on and after 6 April 2008. For
TDSI, the changes will have effect later in the year on and after a date to
be determined in regulations made by the Commissioners for
HM Revenue and Customs.
10. The ISA Regulations will be amended so that on and after 6 April 2008
HMRC will cease collecting quarterly statistics and will, instead, collect a
single ‘subscription return’ at the end of the tax year, which HMRC will use
to publish annual subscription statistics. Managers will still be required to
make an annual ‘market value return’ within 60 days of the end of the tax
year.
11. Under the ISA Regulations, managers are required to retain either paper
forms or electronically scanned copies of an investor’s written ISA
application. On and after 6 April 2008, ISA managers will have the option
of treating a written application in the same way as they would a
non-written one. The manager would transfer all of the details from the
written application form onto their systems, send a written confirmation of
the declaration to the investor and retain a record that the confirmation has
been sent. The ISA manager could then destroy the signed application.
12. Financial institutions that operate TDSI are required to retain either paper
forms or electronically scanned copies of the application to receive gross
payment of interest from UK non-taxpayers or not-ordinarily resident
individuals. Financial institutions will be given the option of treating a
written application in the same way as they would a non-written one (for
example, an application by telephone or via the internet). The financial
institution would transfer all of the details from the written application form
onto their systems, send a written confirmation of the declaration to the
saver and retain a record that the confirmation has been sent. The
financial institution could then destroy the signed application.
13. The existing regulations which cover the operation of the Tax Deduction
Scheme for Interest (1990/2231 (Building Society Regulations), 1990/2232
(Deposit-taker Regulations), 1992/10 (Building Society Audit Regulations)
and 1992/12 (Deposit-taker Audit Regulations)) will be consolidated into a
single set of regulations to be laid later in the year. These regulations will
include the change to give financial institutions who operate TDSI the
option of treating a written application in the same way as they would a
non-written one.
14. There are a number of minor drafting changes being made to the ISA
regulations. These changes are to remove obsolete references and to
update legislative references following the Tax Law Rewrite Acts. These
changes will have no impact on individuals or providers.
Further advice
15. If you have any questions about these changes, please contact David
Ensor on 020 7147 2838 (email: david.ensor@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
2. Charities and CASCs making Gift Aid repayment claims will be entitled to
a transitional relief relating to qualifying Gift Aid donations made in the tax
years 2008-09 to 2010-11. The transitional relief will be paid by
HM Revenue & Customs (HMRC) when a claim for repayment of tax made
within specific timescales is allowed.
Operative date
3. The relief will have effect for Gift Aid repayment claims that relate to
qualifying donations made on and after 6 April 2008 until 5 April 2011.
4. Gift Aid claims for donations made on and after 6 April 2008 will continue
to be processed as previously but using the new 20 per cent basic rate of
income tax.
5. For Gift Aid claims allowed on or after the date that both the Finance Bill
2008 and the Appropriation Bill 2008 receive Royal Assent, HMRC will pay
the transitional relief at the same time as the related Gift Aid repayment.
For claims allowed before both these pieces of legislation receive Royal
Assent, HMRC will pay the Gift Aid repayment as usual, and will pay the
transitional relief after Royal Assent.
9. The relief will be calculated by grossing up the donation by the sum of the
basic rate and the rate of supplement. The amount of relief due will be the
difference between that figure and the amount of the donation grossed up
at the basic rate of tax.
10. Charities and CASCs will be eligible to receive payments of the Gift Aid
transitional relief in respect of Gift Aid repayment claims allowed by HMRC
providing that the claim on form R68 is made:
• for charitable trusts, up to two years after the end of the tax year to
which the claim relates; and
• for charitable companies or CASCs, up to two years from the end of
the accounting period to which it relates.
11. The amount of the transitional relief will be limited by the amount of
qualifying donations, so will increase or decrease as levels of qualifying
Gift Aid donations received by a charity increase or decrease.
12. Information about responses to the recent Gift Aid consultation is available
on the HM Treasury website at www.hm-treasury.gov.uk.
Further advice
13. If you have any questions about this change, please contact John Neale
on 0207 147 2704 (email: john.neale@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
3. The measure will have effect on or after 6 April 2006 (the date on and after
which this part of the Trusts Modernisation legislation has effect).
6. The measure amends this ordering rule, such that income from a
settlor-interested trust is treated within section 1012 of the Income Tax Act
2007 as one of the highest slices of income.
7. If you have any questions about this change, please contact Kyri
Souppouris on 020 7147 2760 (email: kyri.souppouris@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. These changes will have effect for transfers of loan capital on or after the
date that Finance Bill 2008 receives Royal Assent.
4. Section 79(4) of the Finance Act 1986 currently exempts from stamp duty
most forms of loan capital. But where the right to interest on a loan capital
instrument is determined to any extent by the results of a business or
value of any property, the exemption does not apply and transfers of that
loan capital are subject to ad valorem stamp duty.
5. This measure will provide that where the loan capital instrument does not
meet the exemption criteria for the reasons described above, it will
nevertheless qualify for exemption from stamp duty if it is also (a) party to
a capital market arrangement and (b) the right to interest is on limited
recourse terms.
Further advice
6. If you have any questions about this change, please contact Nicky Rass
on 020 7147 2802 (email: Nicola.Rass@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
1. Any person who executes stock transfer forms or other written instruments
to transfer ownership of stock or marketable securities.
Operative date
Further advice
8. If you have any questions about this change, please contact Miles
Harwood on 020 7147 2801 (email: miles.harwood@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
5. The relief for new flats will have effect on and after 1 October 2007. The
relief will be time-limited and will expire on 30 September 2012.
8. Qualifying criteria for the relief are set out in the Stamp Duty Land Tax
(Zero-Carbon Home) Regulations 2007 (SI 2007/3437) and require the
level of carbon emissions from energy use in the home to be zero over the
course of a year. As with other homes, the vendor of a new zero-carbon
flat should provide a certificate confirming that it qualifies for the relief.
10. The relief will provide complete removal of SDLT liabilities for all new zero-
carbon flats up to a purchase price of £500,000. Where the purchase
price of the flat is in excess of £500,000 then the SDLT liability will be
reduced by £15,000. The balance of the SDLT liability will be due in the
normal way.
11. The regulations –The Stamp Duty Land tax (Zero-Carbon Homes Relief)
Regulations 2007 – came into force on 7 December 2007. Legislation to
be introduced in Finance Bill 2008 will amend section 19 of FA 2007 so
that the power to make regulations extends to include new flats. Further
regulations will be laid after Finance Bill 2008 receives Royal Assent to
provide for a fee to be charged by a Government department and to clarify
the position in respect of certificates for any qualifying flats brought prior to
the amendments to the section 58B of FA 2003.
Further advice
12. More details about how the current relief for new zero-carbon homes
operates can be found on the HM Revenue & Customs website.
13. If you have any questions about this change, please contact Michael Lyttle
on 020 7147 2792 (e-mail: michael.lyttle@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
4. Legislation will be introduced in Finance Bill 2008 to change the rules for
persons notifying HMRC about land transactions. The “£600 rule” will also
be changed and, from later this year, agents will be allowed to sign
declarations in the certificate that no stamp duty land tax (SDLT) is due.
Operative date
6. The change to SDLT forms allowing agents to sign the declaration in the
certificate that no stamp duty land tax is due on behalf of their clients will
be made by regulations in due course.
SDLT thresholds
9. Leases must be notified if the lease is for a period of seven years or more
and the grant is made for a chargeable consideration. Leases should also
be notified when they are granted for periods of less than seven years but
tax is chargeable at a rate of 1 per cent or higher on either or both any
premium or rent paid. This also applies in circumstances where there
would have been tax chargeable at a rate of 1 per cent or higher but for
the availability of a relief.
11. This measure will raise the current threshold for notification of non-
leasehold transactions from chargeable consideration of £1,000 to
£40,000.
12. Transactions involving leases for a term of seven years or more will only
have to be notified where any chargeable consideration other than rent is
more than £40,000 or where the annual rent is more than £1,000.
13. Moreover, further changes will mean that it will no longer be necessary to
complete either a stamp duty land tax return (HMRC form SDLT1) or
certificate that no stamp duty land tax is due (HMRC form SDLT 60) if the
transaction is below the notifiable threshold.
14. Provisions in the Finance Act 2003 prevent the manipulation of lease
thresholds and apply to leases where payment is made by both rent and a
premium when the lease is signed. The rule states that where the annual
rent on a lease is more than £600, then the normal 0 per cent thresholds
that would have effect, £125,000 for residential property and £150,000 for
non-residential property, are withdrawn and SDLT is charged at 1 per cent.
This measure will amend these rules as follows:
• for non-residential properties where the annual rent on a lease is
£1,000 or more then the normal 0 per cent threshold that would have
effect at £150,000 is withdrawn and SDLT is charged at 1 per cent; and
• for residential properties the rule will no longer have effect and,
regardless of what rent is paid, the normal thresholds will have effect to
any premium paid. This amendment will also have effect in respect of
disadvantaged areas relief.
15. The HMRC form prescribed by regulations does not permit agents to sign
the certificate that no SDLT is due on behalf of their clients (form SDLT
60). The form can only be signed by the person making the transaction.
HMRC will amend that form by regulations later in 2008 so that agents will
be able to sign the declaration in the certificate on behalf of their clients.
Draft legislation
16. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
17. If you have any questions about this measure, please contact the Stamp
Taxes Help Line on 0845 603 0135. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The measure will be retrospective and have effect for transactions that
occurred on and after 19 July 2007 (the date that Finance Bill 2007
received Royal Assent).
Further advice
7. If you have any questions about this measure, please contact Michael
Lyttle on 020 7147 2792 (email: michael.lyttle@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. This change will have effect for any transaction the “effective date” of
which is on or after 13 March 2008. The effective date is normally the date
of completion not the date of exchange of contracts. However, the
effective date may be earlier than the date of completion if the contract is
“substantially performed”, for example, if the purchaser takes possession
or pays the purchase price in advance of completion. Most residential
contracts will not be “substantially performed” in advance of completion.
7. This legislation will have effect where the vendor leaves the group and
there is then a subsequent change in the control of the purchaser within a
period of three years of the asset having been transferred. The provision
will enable HMRC to link these two events and treat the purchaser as
having left the group first.
9. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
10. If you have any questions about this change, please contact Yasmin Ali on
020 7147 2804 (email: yasmin.ali@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
Operative date
3. This change will have effect for any transaction the “effective date” of
which is on or after 12 March 2008. The effective date is normally the date
of completion not the date of exchange of contracts. However, the
effective date may be earlier than the date of completion if the contract is
“substantially performed”, for example, if the purchaser takes possession
or pays the purchase price in advance of completion. Most residential
contracts will not be “substantially performed” in advance of completion.
4. Sections 71A, 72, 72A and 73 of Finance Act 2003 were introduced in
2005 to encourage the use of alternative finance structures that did not
use conventional mortgage schemes to buy property.
6. Some financial institutions have misused these two exemptions from SDLT
by colluding with vendors so that ownership of a property is placed in a
subsidiary company of the financial institution. The subsidiary then claims
that the transaction is intended for the purposes of allowing the equivalent
of mortgaging on a mortgage free property or re-mortgaging.
7. Once ownership of the property has passed from the vendor to the
subsidiary, however, the financial institution can then sell the property
without incurring any SDLT by selling shares in the subsidiary company.
9. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
10. If you have any questions about this change, please contact Michael Lyttle
on 020 7147 2792 (email: michael.lyttle@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
1. Members of the Greater London Authority (GLA) and the Mayor of London.
Operative date
4. Payments currently fall within section 62 of the Income Tax (Earnings and
Pensions) Act 2003 (ITEPA) and would be taxed in full.
5. Legislation in Finance Bill 2008 will ensure that the payments are treated
as termination payments by an amendment of section 291 of ITEPA.
Further advice
6. If you have any questions about this change, please contact Peter
Seedhouse on 020 7147 2529 (email: peter.seedhouse@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
4. Payments currently fall within section 62 of the Income Tax (Earnings and
Pensions) Act 2003 (ITEPA) and would be taxed in full.
5. Legislation in Finance Bill 2008 will ensure that the payments will be
specifically exempt from tax by the insertion of a further exemption at Part
4 of Chapter 8 (Exemptions: Special Kinds of Employees) of ITEPA.
Parallel disregards are being introduced in secondary legislation for
National Insurance contributions and Tax Credits purposes.
Further advice
6. If you have any questions about this change, please contact the Employer
Helpline on 0845 7143 143. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
6. Since then HM Revenue & Customs has seen, through the tax avoidance
disclosure regime and otherwise, evidence of arrangements of a similar
nature based on individuals acting as traders on their own account rather
than as partners.
9. The restrictions will not apply to losses that derive from qualifying film
expenditure, broadly losses that derive from film reliefs in sections 137 to
140 of the Income Tax (Trading and Other Income) Act 2005, or to losses
of a Lloyd’s underwriting business.
10. Transitional rules will apply to the computation of losses subject to the
annual limit where these arise for an individual’s basis period which begins
before 12 March 2008 and ends on or after that date.
12. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
13. If you have any questions about this change, please contact Peter Lees on
028 9093 9812 (email: peter.lees@hmrc.gsi.gov.uk). Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to ensure that the credit
for any foreign tax paid on trade or professional earnings is no more than
the UK income tax due in respect of the same earnings.
Operative date
3. The legislation will have effect for income arising on or after 6 April 2008
and for foreign tax paid on or after 6 April 2008.
4. The legislation will clarify the way that section 796 of the Income and
Corporation Taxes Act 1988 defines the maximum credit available against
UK income tax in respect of foreign taxes.
5. This measure will confirm existing practice and is in keeping with the
changes made in 2005 to the corporation tax regime. It will remove doubts
about the basis of foreign tax credit following recent case law.
Further advice
6. If you have any questions about this change, please contact Andrew Page
on 020 7147 2673 (email: andrew.page@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
Further advice
6. If you have any questions about this change, please contact Richard
Rogers on 020 7147 2625 (email: richard.rogers@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. The first measure will be treated as having always had effect. The second
will have effect for income arising on or after 12 March 2008.
5. But the users of the scheme claim that a provision, known as the Business
Profits Article, common to most tax treaties, exempts the partnership
profits from UK tax – not only in the hands of the foreign partners but also
in the hands of the UK beneficiaries.
6. The first provision will make clear that (in line with retrospective legislation
introduced in Finance (No2) Act 1987) tax treaties do not exempt UK
residents from UK tax on any profits of a foreign partnership to which they
are entitled.
8. Draft legislation and explanatory notes have been published today on the
HM Revenue & Customs website.
Further advice
9. If you have any questions about this change, please contact Martin Brooks
on 020 7147 2651 (email: martin.brooks@hmrc.gsi.gov.uk) or Simon Davis
on 020 7147 2666 (email: simon.davis@hmrc.gsi.gov.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
Operative date
7. The information required and the time by which that information must be
provided are prescribed under Part 7 in the Tax Avoidance Schemes
(Information) Regulations (SI 2004/1864, as amended).
11. The existing legislation requires a promoter to pass the SRN to a client
when the client implements the scheme. In practice, promoters often pass
the SRN on earlier, as soon as they make the scheme available to clients.
The legislation will be amended to ensure that clients who use a scheme
have to report to HMRC SRNs received via this non-compulsory route.
12. HMRC will use the existing powers in section 316 to require promoters to
use an HMRC form to pass the SRN to clients. The form will provide the
client with key information about what to do with the SRN. It will be
available for download on HMRC’s website alongside the existing
disclosure forms.
13. The legislation will require clients who receive a SRN to pass it on to any
other person who is party to the same scheme and is likely to obtain a tax
advantage from using it.
14. The legislation will also provide for HMRC to withdraw a SRN, thereby
removing the obligation for the SRN to be passed on to other parties or
reported to HMRC.
Further advice
16. If you have any questions about these changes please contact Philippa
Staples on 020 7147 2444 (email: philippa.staples@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
4. The Return to Work and In-work Credit schemes have been run as pilot
schemes by the Department for Work and Pensions (DWP) in Great
Britain and the Department for Employment and Learning (DEL) in
Northern Ireland. The pilot schemes have been in place since
1 October 2003 and 6 April 2004, respectively.
Operative date
5. The exemptions and disregards will have effect for payments made on and
after 6 April 2008.
10. Information about these schemes will be available on the DWP website at
www.dwp.gov.uk and the DEL website at www.delni.gov.uk
Further advice
11. If you have any questions about the tax change, please contact Paul
Thomas 020 7147 2479 (email: paul.thomas@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
1. Employees provided with a car that is available for their private use, and
employers who pay Class 1A National Insurance contributions on the
taxable benefit of a company provided car.
Operative date
6. The CO2 emissions figure which determines the 15 per cent rate for petrol
cars (the lower threshold) has been set as follows:
• 2008-09: 135 grams per kilometre of CO2; and
• 2009-10: 135 grams per kilometre of CO2.
7. From 2010-11 the lower threshold will be reduced by 5g/km to 130 g/km.
Further advice
8. If you have any questions about this change, please contact the Employer
Helpline on 0845 7143 143 or your local HMRC office. Information about
Budget measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
1. Employees provided with a company van available for their private use,
who purchase fuel for business travel which is then reimbursed or
otherwise paid for by their employer. Employers who bear Class 1A
National Insurance on the taxable benefit of providing a van and the fuel
for it purchased by the employee.
Operative date
3. This measure will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
4. Section 239(3) of the Income Tax (Earnings and Pensions) Act 2003
(ITEPA) signposts that section 239(1) and (2) of ITEPA do not prevent a
charge to tax arising under section 149 of ITEPA in relation to company
car fuel benefit. To ensure consistency the amendment expands the
signpost to cover van fuel benefit (section 160 of ITEPA).
5. A further minor change to section 269 of ITEPA will ensure that the
signposting provided by the section covers van fuel as well as car fuel.
Further advice
6. If you have any questions about this change, please contact Elizabeth
O’Donnell on 020 7147 2502, email: elizabeth.j.o’donnell@hmrc.gsi.gov.uk
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
4. On and after 1 April 2008, the three existing duty rates for heavy oil
(diesel) will be reduced to one (heavy oil). On and after 1 October 2008,
this rate will increase by 2 pence per litre. On and after 1 April 2009, this
rate will be further increased by 1.84 ppl, and on and after 1 April 2010, by
0.5ppl above indexation in that year.
Unleaded Current Duty rate per Duty rate per Duty rate
petrol rate per litre (£) on litre (£) on per litre
litre (£) and after 1 and after 1 (£) on and
April 2008 October 2008 after 1
April 2009
ULSP 0.5035
SFP 0.5035
6. On and after 1 October 2008, the duty rate for leaded petrol will increase
by 2 ppl.
Leaded petrol Current rate per litre Duty rate per litre (£)
(£) on and after 1
October 2008
Light oil (other than 0.6007 0.6207
unleaded petrol)
7. The duty rate for aviation gasoline (AVGAS) is half that of the light oil
(other than unleaded petrol) rate. On and after 1 November 2008 a new
fiscal definition of AVGAS will be introduced and the rate will be made
freestanding at the 1 October level.
8. On and after 1 October 2008, on and after 1 April 2009 and on and after 1
April 2010, effective rates of duty (that is, the relevant duty minus the
relevant rebate) for non-road fuels will be increased by the same
percentage as main road fuels.
9. The current duty differential of 20 ppl for biofuels for road use will cease
from 2010 and duty will thereafter be charged at the same rate as main
road fuels.
10. On and after 1 April 2008, a new rebated rate of duty will be introduced on
biodiesel and bioblend used other than as fuel for road vehicles. On and
after 1 October 2008, this rate will be increased by the same percentage
as main road fuels. The existing repayment mechanism in relation to the
use of unblended biodiesel in off-road applications will come to an end. In
the case of bioblend produced with kerosene for heating use, a nil rate of
duty will have effect.
11. The duty rate for natural gas will increase to maintain the differential with
main road fuels in pence per litre equivalents up to 2010-11. The duty rate
for liquefied petroleum gas will increase to reduce the differential with main
road fuels by the equivalent of 1 penny on litre of petrol up to 2010-11, in
line with the alternative fuels framework.
Road fuel gases Current Duty rate per kg Duty rate per kg
effective rate (£) on and after (£) on and after
per kg (£) 1 October 2008 1 April 2009
13. The Hydrocarbon Oil Duties Act 1979 will be amended by Finance Bill
2008 to implement those changes to have effect on and after 1 April 2008.
Further advice
14. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The measure will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
5. Until the main primary legislation introducing aviation duty becomes law,
expected to be in Finance Act 2009, it remains outside the scope of
HMRC’s responsibility and consequently expenditure related to its
development is restricted.
Further advice
7. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
5. The new registration and deregistration thresholds will have effect on and
after 1 April 2008.
6. The increase in the taxable turnover threshold means that a person will
have to apply for registration if:
• at the end of any month, the value of the taxable supplies made in the
past 12 months or less has exceeded £67,000; or
• at any time there are reasonable grounds for believing that the value of
the taxable supplies to be made in the next 30 days alone will exceed
£67,000.
8. Schedules 1 and 3 to the Value Added Tax Act 1994 will be amended by
statutory instrument to give effect to these changes.
Further advice
9. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
2. This measure will extend the VAT exemption for fund management to
cover UK-listed investment entities (including investment trust companies
and venture capital trusts) and certain overseas funds.
Operative date
3. The measure will have effect for supplies of services made on or after 1
October 2008.
4. Items 9 and 10, of Group 5 of Schedule 9 to the VAT Act 1994 exempt the
management of authorised unit trusts, trust based schemes and open-
ended investment companies.
Further advice
8. If you have any questions about this change, please contact Ted
Castledine on 020 7147 0177 (e-mail: ted.castledine@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
1. Businesses registered for Value Added Tax (VAT), insurance premium tax
(IPT), air passenger duty (APD), landfill tax (LFT), climate change levy
(CCL) and aggregates levy (AGL).
2. This measure will increase the limit below which errors on previous returns
may be corrected on the return for the period in which the errors are
discovered.
Operative date
4. The error correction regulations for VAT, IPT, APD, LFT, CCL and AGL
permit the inclusion of errors below £2,000 on the next return submitted.
Errors exceeding £2,000 have to be separately notified to HM Revenue &
Customs (HMRC).
5. Regulation 34(3) of the VAT Regulations 1995 (SI 1995/2518) permits the
taxable person to correct their VAT account during the accounting period
in which the error is discovered, provided the net errors discovered do not
exceed £2,000.
10. Regulation 29(2), (3) and (6) of the Aggregates Levy (General)
Regulations 2002 (SI 2002/761) provide that, where a registrable person
discovers a return previously made is based on an under-calculation or an
over-calculation, they must correct the error on the return for the
accounting period in which it was discovered, provided the total net
amount does not exceed £2,000.
11. This measure increases the de minimis £2,000 limit to the greater of
£10,000 or 1 per cent of turnover, subject to an upper limit of £50,000 for
VAT, IPT, LFT, CCL and AGL. For VAT, LFT, CCL and AGL errors above
£10,000, the limit for correcting errors on the next return will be calculated
by reference to net VAT turnover (Box 6 on VAT return) for the return
period. For IPT, this limit will be calculated by reference to the net IPT
turnover (Box 10 on IPT return). APD procedures will be amended to
increase the de minimis limit to the greater of £10,000 or 1 per cent of duty
due, before adjustments for errors from previous periods, subject to an
upper limit of £50,000. For LFT, CCL and AGL taxpayers who are not
required to be registered for VAT a single limit of £10,000 will have effect.
Further advice
13. If you have any questions about this change, please contact HMRC
National Advice Service on 0845 010 9000. Information about Budget
measures is available on the HM Revenue & Customs website at
www.hmrc.gov.uk
1. Businesses which recover input tax on fuel used for private motoring.
2. This measure will amend the VAT scale charges for taxing private use of
road fuel, to reflect changes in fuel prices. It will also amend the table of
CO2 bands to maintain alignment with those used for direct tax purposes.
Operative date
4. The scale charges are set out in Table A in Section 57(3) of the Value
Added Tax Act 1994. Secondary legislation will be laid before Parliament
in March to replace the current table with a new table to reflect the
changes to the scale charges.
5. The table below shows the revised scale charges and output tax payable
in each accounting period, depending whether it is a 12 month, 3 month or
1 month accounting period.
CO2 band, g/km VAT fuel scale VAT on 1 month VAT exclusive 1
120 or less 46.00 6.85 39.15
125 69.00 10.28 58.72
130 69.00 10.28 58.72
135 69.00 10.28 58.72
140 73.00 10.87 62.13
145 78.00 11.62 66.38
150 82.00 12.21 69.79
155 87.00 12.96 74.04
160 92.00 13.70 78.30
165 96.00 14.30 81.70
170 101.00 15.04 85.96
175 105.00 15.64 89.36
180 110.00 16.38 93.62
185 115.00 17.13 97.87
Further advice
11. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
6. The reduced rate of 5 per cent has effect for all other supplies of
pharmaceutical smoking cessation products, including supplies made over
the internet. This includes all non-prescribed sales of patches, gums,
inhalators and other pharmaceutical products held out for sale for the
primary purpose of helping people to quit smoking.
7. To coincide with the smoking ban in England, the VAT (Reduced Rate)
Order 2007 (SI 2007/1601) introduced Group 11 of Schedule 7A to the
Value Added Tax Act 1994. The Order specified that this reduced rate was
to have effect in relation to supplies of smoking cessation products made
on or after 1 July 2007 but before 1 July 2008. Secondary legislation will
be laid before Parliament to extend the reduced rate beyond
30 June 2008.
Further advice
8. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Businesses registered for VAT between 1 April 1973 and 1 May 1997 who
either declared more output VAT than they were liable for, or claimed less
input VAT than entitled to.
Operative date
5. Regulation 29(1A) provides that no claim for input tax can be made more
than three years after the due date of the return, for the accounting period
in which the input tax was incurred.
7. This measure will give effect to the judgment of the House of Lords by
providing a transitional period during which claims for input tax can be
made, for accounting periods ending between 1 April 1973 and 1 May
1997, before they become subject to the three-year time limit.
8. Section 80 provides that where a person accounts for more output VAT
than is due, they can claim it back from HMRC. Section 80(4) provides that
HMRC are not liable to pay any claim made more than three years after
the end of the accounting period to which it relates.
10. This measure will provide a transitional period during which claims for
overdeclared output tax can be made, for accounting periods ending
between 1 April 1973 and 4 December 1996, before they become subject
to the three-year time limit.
12. This measure will add a two-year time limit from the end of the accounting
period in which an erroneous payment is made. This will ensure that
HMRC are able recover amounts paid out where it is later discovered
repayment was mistaken.
13. This will also bring these assessment time limits into line with those for
HMRC’s other VAT assessment powers.
15. This measure will amend the time limit, so that it runs from the end of the
accounting period in which the claim was paid, ensuring that HMRC will be
able to recover any amounts incorrectly paid.
Further advice
16. If you have any questions about this change, please contact Pauline
Walsh on 0113 389 4432 (e-mail: pauline.walsh3@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
2. This measure will simplify the legislation relating to the option to tax land
and/or buildings. It will also introduce minor changes to enable taxpayers
to revoke an option to tax after 20 years and make a number of associated
changes to improve practical administration of the option to tax.
Operative date
3. The rewritten legislation will have effect on and after 1 June 2008. The
earliest date an option to tax will be revocable will be 1 August 2009.
4. The law relating to the option to tax land and buildings for VAT is
contained in Schedule 10 to the VAT Act 1994.
7. If you have any questions about this change, please contact James
Ormanczyk on 020 7147 0484 (email james.ormanczyk@hmrc.gsi.gov.uk).
Further guidance and information will be published when the Treasury
Order is laid. Information about Budget measures is available on the HM
Revenue & Customs website at www.hmrc.gov.uk
3. In order to qualify for exemption, disposers must apply for and obtain a
relief certificate from HM Revenue & Customs (HMRC) before disposing of
their waste. This measure sets the deadline for the receipt of applications
for exemption under the scheme and the date from which the exemption
will be removed.
Operative date
6. Section 43B(1) of the Finance Act (FA) 1996 sets out the conditions that
must be satisfied in order for relief certificates to be issued. This
subsection will be amended to preclude the acceptance of applications
received on or after 1 December 2008.
7. The eligibility criteria for exemption are set out at section 43A of FA 1996.
Sections 43A and 43B FA 1996 will be repealed with effect on and after
1 April 2012.
10. HMRC will write to landfill site operators and other interested businesses
to provide more details about these changes. The secondary legislation
needed to enact these changes will be published in draft in Summer 2008.
Further advice
11. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
4. The period after which an environmental body must submit details of its
income, expenditure and balances to the regulator, or the Commissioners
if appropriate, will be extended from 14 to 28 days after either the end of
the relevant period or a request being made. The relevant period is usually
a 12 month period from 1 April to 31 March each year.
Operative date
Further advice
11. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The new £40 per tonne rate will have effect for any standard rated
disposal of waste made, or treated as made, on or after 1 April 2009.
4. Section 42 of the Finance Act (FA) 1996 specifies the rates of landfill tax,
and will be amended to reflect the new standard rate.
5. The standard rate is currently £24 per tonne but this will increase to £32
per tonne from 1 April 2008 as a result of a change made by FA 2007.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The new rate will have effect for any aggregate commercially exploited on
or after 1 April 2009.
4. Section 16(4) of the Finance Act 2001 specifies the rate of aggregates
levy. This will be amended by Finance Bill 2008.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Suppliers and others liable to account for the climate change levy.
Operative date
3. The new rates shown in paragraph 2 above will have effect for supplies of
taxable commodities treated as taking place on or after 1 April 2009.
4. Paragraph 42(1) of Schedule 6 to the Finance Act 2000 contains the rates
of climate change levy. Finance Act 2007 amended paragraph 42 to
provide for the new rates on and after 1 April 2008. These rates from
1 April 2008, which were increased broadly in line with inflation, will be:
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The measure will have effect for electricity generated from coal mine
methane on or after 1 November 2008.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. This measure will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
4. Supplies of electricity and gas are continuous. The point at which climate
change levy (CCL) should be accounted for on such supplies to
HM Revenue & Customs is generally determined by the issue of an
invoice (e.g., an energy bill). For CCL purposes, a bill relating to a supply
of electricity or gas must contain information relating to the supplier, the
customer, the date of issue, and the period and quantity of electricity or
gas covered. The bill must also say whether it is a CCLAD by including
on it the phrase “climate change levy accounting document”, “CCL
accounting document” or similar alternatives. As well as creating an
accounting document for CCL, the CCLAD can also be used as evidence
to support claims for bad debt relief by the energy supplier.
6. Suppliers of electricity and gas that wish to continue to identify their bills as
CCLADs can still opt to do so.
7. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
2. The UK’s derogations from the Energy Products Directive (EPD) which
permitted the use of reduced and exempt rates of duty on fuel used for the
purposes of private pleasure-flying, pleasure boating and on waste oils
re-used as fuel, expired on 31 December 2006 following a decision by the
European Commission. On and after 1 November 2008 fuel used for
these purposes will no longer benefit from the current reduced and exempt
rates of duty. The following changes will instead be introduced.
Pleasure-flying
Pleasure-boating
5. The use of red diesel will continue to be permitted for pleasure boating but
the supplier will be liable to account for and pay to HMRC an amount
equivalent to the rebate allowed on the fuel. HMRC will continue informal
discussions with stakeholders to consider an allowance for fuel used for
the purposes of heating and lighting.
6. Waste oil recoverers will be treated as oil producers. A positive rate of duty
equivalent to that for fuel oil, 9.66 pence per litre, will be introduced on
heavy oil, which encompasses waste oils but only if supplied as fuel.
Operative date
Further advice
10. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Anyone who provides a licensable gaming machine for play in the UK.
Operative date
3. The new duty amount for all gaming machines will have effect for any
licence applications received at HM Revenue & Customs (HMRC)
Greenock accounting centre after 4pm on 14 March 2008.
4. The table in section 23 of the Betting and Gaming Duties Act 1981
(BGDA), setting out the amounts of licence duty, will be replaced by the
table below.
Further advice
7. If you have any questions about this change, please contact National
Advice Service on 0845 010 9000. Information about Budget measures
are available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Casino operators.
2. The Gross Gaming Yield (GGY) bandings for each duty band will be
increased in line with inflation.
Operative date
3. The changes to the bandings come into effect for accounting periods
starting on or after 1 April 2008.
4. The table of GGY bandings in section 11 of the Finance Act 1997 will be
replaced by the table above. As a consequence of this change, regulations
will be made to amend the table for interim payments on account in the
Gaming Duty Regulations 1997.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to increase the rates of duty
on tobacco products imported into, or manufactured in, the United Kingdom in
line with inflation.
Operative date
3. The rate changes will have effect on and after 6pm on 12 March 2008.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
2. Legislation will be introduced in Finance Bill 2008 to provide for the annual
setting of duty rates for alcohol. Duty rates will increase by 6 per cent in
real terms for all alcoholic drinks. The impact of the changes on retail
prices for typical alcoholic drinks is equivalent to:
• 55 pence on a 70cl bottle of spirits @ 37.5% abv;
• 4 pence on a pint of beer;
• 3 pence on a litre of still cider;
• 14 pence on a 75cl bottle of sparkling cider;
• 14 pence on a 75cl bottle of wine or made-wine; and
• 18 pence on a 75cl bottle of sparkling wine.
3. The Small Brewers Relief scheme will continue to provide 50 per cent duty
relief to the smallest brewers.
Operative date
5. The Alcoholic Liquor Duties Act 1979 and the HM Revenue & Customs
Tariff will be amended to effect the changes.
Further advice
6. If you have any questions about this change, please contact the National
Advice Service on 0845 010 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Type Rate
Spirits 21.35
Beer 14.96
Operative date
5. The repeal of the fraction disregard will have effect on and after the date
that Finance Bill 2008 receives Royal Assent. The common calculation
method will be introduced later in the year after further discussions with
the alcohol industry on timing.
6. Section 137(2) of the Customs and Excise Management Act 1979 (CEMA)
requires that where duty is chargeable on a volume of goods, the duty
must be calculated proportionately on any fraction of that volume of goods.
Section 137(3) of CEMA allows HMRC to determine the fraction to be
taken into account. This applies equally to calculating any amount of duty
due from or to a person and is not limited to excise duty on alcohol. No
changes are proposed to these provisions.
8. If you have any questions about this change, please contact the National
Advice Service on 0845 101 9000. Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
Operative date
3. The measure will have effect on and after the date that Finance Bill 2008
receives Royal Assent.
6. If you have any questions about this change, please contact Howard
Buttery on 0161 827 0340 (email: howard.buttery@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue and
Customs website at www.hmrc.gov.uk.
Operative date
3. The measure will have effect from the date that Finance Bill 2008 receives
Royal Assent. The power will first be used, with retrospective effect, to
waive interest and surcharges on tax paid late as a result of the severe
flooding that affected the UK in June and July of 2007.
5. This measure will introduce a power that would allow the Commissioners
of HM Revenue & Customs to waive interest and surcharges where tax
and / or duties are paid late because of a disaster of national significance.
6. Section 107 of the Finance Act 2001 ensured that those affected by foot
and mouth should have the interest charge removed where the then Inland
Revenue agreed, because of the effect of the foot-and-mouth disease
outbreak, to defer the payment of tax. The proposed legislation is
modelled on that provision.
8. If you have any questions about this change, please contact Robert Horwill
on 0207 147 2447 (email: robert.horwill@hmrc.gsi.co.uk). Information
about Budget measures is available on the HM Revenue & Customs
website at www.hmrc.gov.uk
2. The decision in the case of ‘The Queen (on the application of John
Wilkinson) v. The Commissioners for Her Majesty’s Revenue and
Customs’ (‘Wilkinson’) made clear that the scope of the discretion of HM
Revenue & Customs (HMRC) to make concessions from the strict
application of tax law is not as wide as had previously been thought.
3. HMRC has been reviewing its concessions in the light of the Wilkinson
judgment and that review is expected to be completed in the autumn. The
majority of HMRC’s concessions are clearly within the scope of its
”collection and management” discretion and so can continue to operate as
they are.
Operative date
5. This power will be operative on and after the date that Finance Bill 2008
receives Royal Assent, but no orders under this power are expected to be
made until after HMRC’s review of its concessions has been completed.
8. Any order under this power will be made only if a draft of that order has
been laid before, and has been approved by a resolution of, Parliament.
Further advice
9. If you have any questions about this change, please contact David
Stephens on 020 7147 2402 (email: david.stephens@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
8. The new provisions for incorrect returns will provide for penalties in line
with Schedule 24 to FA 2007, which are based on the amount of tax
understated, the nature of the behaviour and the extent of disclosure by
the taxpayer. There will be no penalty where a taxpayer makes a mistake
but there will be a penalty of up to:
• 30 per cent for failure to take reasonable care;
• 70 per cent for a deliberate understatement; and
• 100 per cent for a deliberate understatement with concealment.
10. Where a return is incorrect because a third party has deliberately provided
false information or deliberately withheld information from the taxpayer,
with the intention of causing an understatement of tax due, there will be a
new provision allowing a penalty to be charged on the third party.
11. The measure will also provide for reformed penalties for some specific
excise duty wrongdoings: misusing goods subject to reduced excise duty
rates, e.g. red diesel; and handling goods on which excise duty should
have been paid but has not.
12. For failure to notify a taxable activity there will be no penalty unless there
is tax and / or NICs due but unpaid as a result, nor where the taxpayer has
a reasonable excuse for the failure. Otherwise there will be a penalty of:
• 30 per cent of tax unpaid for non-deliberate failure to notify;
• 70 per cent of tax unpaid for a deliberate failure to notify; and
• 100 per cent of tax unpaid for a deliberate failure with concealment.
Each penalty will be substantially reduced where the taxpayer makes a
disclosure (takes active steps to put right the problem), more so if this is
unprompted.
13. For Class 2 NICs, the provisions will replace the fixed penalty of £100 for
notification more than three months after starting self-employment with a
behaviour based penalty. The obligation to notify remains unchanged.
Further advice
17. If you have any questions about this change, please send an email to
powers.review-of-hmrc@hmrc.gsi.gov.uk or contact Maria Richards on
020 7147 3223. Information about Budget measures is available on the
HM Revenue & Customs website at www.hmrc.gov.uk
1. Individuals and businesses who are within the scope of PAYE, VAT,
income tax (IT), capital gains tax (CGT) and corporation tax (CT) and who
pay tax or make claims.
2. Legislation will be introduced in Finance Bill 2008 to reform the rules for
checking that businesses and individuals have paid the correct amount of
IT, CGT, CT, VAT and PAYE or claimed the correct reliefs and allowances.
Operative date
Information powers
6. For VAT and PAYE, HM Revenue & Customs (HMRC) has inspection
powers with no rights of appeal. For IT, CGT and CT, HMRC has a
combination of information powers, which need pre-authorisation by the
appeal commissioners and can only be challenged by judicial review and
enquiry powers that can only be used once a self assessment enquiry
notice into a particular return has been issued. Authorisation levels,
penalties and appeal rights differ across the different regimes. The relevant
7. The new powers will align and modernise HMRC’s access to records and
information.
8. The new package will align existing powers and safeguards and introduce:
• a power to inspect records required under the record-keeping
legislation – this restricts the existing VAT and PAYE inspections to
statutory records and introduces a new power of inspection for direct
tax;
• a power to require supplementary information which is relevant to
establishing the correct tax position;
• a power to require third parties to provide information which is relevant
to establishing a taxpayer’s correct tax position;
• a power to visit business premises and to inspect records, assets and
premises;
• removal of VAT and PAYE powers to undertake inspections at private
homes without taxpayer consent;
• appeal rights against any penalty, and against information notices
which have not been pre-authorised by an appeal tribunal;
• penalties for failure to allow an inspection and failing to comply with an
information notice, including a tax-geared penalty which can be
imposed by the new upper tier tribunals; and
• an updated criminal offence of destroying or concealing records
requested under a notice authorised by a tribunal.
9. Time limits for changing the amount of tax due by assessment vary across
the taxes. Current time limits are set out below:
10. The new legislation will align the time limits for assessments to the
following model:
11. Time limits for taxpayers’ claims will also be aligned, at 4 years.
12. This measure was the subject of initial consultation in May 2007.
Responses to that consultation together with draft legislation for further
consultation were published on 10 January 2008 – A New Approach to
Compliance Checks: Responses to Consultation and Proposals. A
summary of responses to that consultation and a Final Impact Assessment,
including an explanation of any resulting changes, will be published shortly.
Further advice
13. If you have any questions about this change, please send an email to
powers.review-of-hmrc@hmrc.gsi.gov.uk or contact Maria Richards on
020 7147 3223. Information about Budget measures is available on the HM
Revenue & Customs website at www.hmrc.gov.uk
1. Individuals and businesses who wish to pay tax and duties etc by credit
card.
2. Those who have not met their obligations to pay what they owe on time.
3. The measure will make it easier for taxpayers to pay what they owe on
time, and for HM Revenue & Customs (HMRC) to tackle those who seek
to avoid their obligations by paying late or not at all. There are three
separate changes to the current law:
• new legislation to enable HMRC to introduce a credit card payment
service;
• HMRC will be able to set the repayments it must make to individuals
and businesses against the payments it is owed by them; and,
• HMRC’s debt enforcement powers to collect unpaid sums by taking
control of goods in England & Wales, or by taking action through the
civil courts will be modernised and aligned.
Operative dates
5. The ability to set repayments against debt will have effect on and after the
date that Finance Bill 2008 receives Royal Assent.
9. HMRC’s powers to enforce the payment of civil debt, where reminders and
other actions have not been successful, were inherited from the former
Inland Revenue and HM Customs & Excise. These powers differ across
regimes, which can be confusing for taxpayers and lead to unnecessary
costs to the Exchequer. This package of changes will modernise and align
the enforcement powers in England & Wales and Scotland so that HMRC
may recover debts in a single action. It will also mean an end to the
current practice where taxpayers may face two sets of costs and fees.
10. This measure was the subject of initial consultation in June 2007.
Responses to that consultation together with draft legislation for further
consultation were published on 10 January 2008 – Payments,
Repayments and Debt: Responses to Consultation and Proposals. A
summary of responses to that consultation and a Final Impact
Assessment, including an explanation of any resulting changes, will be
published shortly.
Further advice
11. If you have any questions about this change, please send an email to
powers.review-of-hmrc@hmrc.gsi.gov.uk or contact Maria Richards on
020 7147 3223. Information about Budget measures is available on the
HM Revenue & Customs website at www.hmrc.gov.uk
1. Airport, port, wharf and transit shed operators; and individuals and
businesses involved in the import and export of goods.
Operative date
3. The changes will come into effect from the date that Finance Bill 2008
receives Royal Assent.
4. Section 159(1) of the Customs and Excise Management Act 1979 gives
officers the power to examine goods which are being imported or
exported. Officers may for this purpose require that any containers are
opened and unpacked.
5. The measure will amend section 159(1) to allow customs officers to open
and unpack containers themselves, should they think it necessary, rather
than insisting that it is done by the proprietor of the goods. The changes
will also make clear that HMRC’s powers of examination extend to
searching containers and baggage.
Further advice
6. If you have any questions about this change, please contact Marie
Campbell on 01702 361780 (email: marie.campbell@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
3. The power will have effect on and after the date that Finance Bill 2008
receives Royal Assent. It is intended that the secondary legislation will
come into effect in April 2009 alongside implementation of the Ministry of
Justice tribunal reforms under the Tribunals, Courts and Enforcement Act
2007 (the TCEA).
4. Under the law, the way HMRC deals with appeals reflects the different
history of the two former departments, the requirements of particular taxes
or schemes and the four independent appeals bodies that hear tax
appeals against HMRC decisions.
5. The TCEA creates a First-tier Tribunal into which most existing tribunal
appeal functions will be transferred, including tax appeals, and an Upper
Tribunal which will hear appeals against the decisions of the First-tier
Tribunal (and may hear some first instance appeals in certain
circumstances).
7. The consultation Tax Appeals against decisions made by HMRC ran from
October to December 2007. The results of that consultation and proposals
for the way forward are published today on the HMRC website.
8. If you have any questions about this change, please contact Eileen
Rafferty on 0207 147 2405 (email: eileen.rafferty@hmrc.gsi.gov.uk).
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
2. The rate at which remittance basis users will be liable to income tax on
foreign dividends is being corrected to 40 per cent for those individuals
liable at the higher rate. This corrects an error introduced by the Tax Law
Rewrite.
Operative date
3. This change will have effect for remittances on and after 6 April 2008.
4. Currently, remittance basis users who are higher rate taxpayers are liable
at 32.5 per cent on foreign dividend income remitted to the UK.
5. The Income Tax (Trading and Other Income) Act 2005 mistakenly
changed the rate at which foreign dividend income is charged to tax on
these remittance basis users from 40 per cent to 32.5 per cent. Tax Law
Rewrite Bills are not intended to amend the substance of tax legislation.
Further advice
2. Legislation will be introduced in Finance Bill 2008 to change the way days
are counted for residence test purposes.
Operative date
5. The changes announced today mean that on and after 6 April 2008, any
day where the individual is present in the UK at midnight will be counted
as a day of presence in the UK for residence test purposes.
Operative date
4. All UK residents are entitled to a personal tax allowance and reliefs for
income tax and the AEA for capital gains. The majority also pay tax on
their worldwide income and gains even if that income and gains remains
offshore. UK residents who are either not domiciled, or not ordinarily
resident, in the UK can pay tax on the remittance basis which means that
income and gains arising overseas are taxed in the UK only when, and if,
they are brought into the UK.
5. On and after 6 April 2008, individuals who claim use of the remittance
basis will not be entitled to any of the personal income tax allowances.
This includes the basic personal allowance and age-related allowances,
blind person’s allowance, tax reductions for married couples and civil
partners and relief for life insurance payments. Remittance basis users
will also lose access to the AEA for capital gains.
6. A de minimis limit will have effect so that remittance basis users who have
unremitted foreign income and gains of less than £2,000 a year will be
able to retain access to any of the personal income tax allowances to
which they are entitled and the AEA for capital gains. This £2,000 limit is
instead of the £1,000 limit proposed in the Pre-Budget report.
Further advice
Operative date
3. The majority of these changes will have effect on and after 6 April 2008.
However some have effect on and after 12 March 2008. Operative dates
are provided below.
4. There will be a number of changes made to the way the remittance basis
works. An explanation of the current remittance basis rules and how they
will change follows.
‘Ceased source’
5. Foreign savings and investment income are not currently taxed when
remitted to the UK if the source of the income no longer exists in that year.
6. Legislation will be amended so that where the remittance basis has been
claimed for a year, income of that year will be liable to tax if it is remitted to
the UK, even where the source of the income has ceased in a previous
year. The legislation to achieve this was published in draft on
18 January 2008.
‘Cash only’
7. Relevant foreign income can only currently be taxed if it is brought into the
UK as cash. If a remittance basis taxpayer turns relevant foreign income
into an asset outside the UK and then imports that asset, no UK tax can be
charged on the income unless and until the asset is sold or turned into
cash in the UK.
9. There will be exemptions for personal effects (that is, clothes, shoes,
jewellery and watches), assets costing less than £1,000, assets brought
into the UK for repair and restoration and assets in the UK for less than a
total nine month period purchased out of relevant foreign income. There is
also a new exemption from a remittance basis tax charge for works of art
brought into the UK for public display. That is explained in BN105.
10. Any asset purchased out of untaxed relevant foreign income which an
individual owned on 11 March 2008 will be exempt from a charge under
the remittance basis, for so long as that individual owns it, even if that
asset is currently outside the UK and later imported. Any asset in the UK
on 5 April 2008 will also be exempt from a charge under the remittance
basis, for so long as the current owner owns it, even if that asset is later
exported and the re-imported. The existing charge that arises if such an
asset is sold in the UK will remain.
11. The current rules for employment income and capital gains already tax
assets when they enter the UK where they were purchased out of untaxed
foreign employment income or capital gains. Those rules remain
unchanged.
‘Claims mechanism’
12. Foreign savings and investment income arising in a year in which the
remittance basis is claimed are not currently taxed if remitted in a
subsequent year in which no claim to the remittance basis is made.
Mixed funds
14. There are currently no statutory rules on the treatment of remittances from
funds which include some combination of untaxed relevant foreign income,
employment income, capital gains, taxed income or gains and capital.
15. Legislation will be introduced to lay down clear statutory rules for
determining how much of a transfer from a mixed fund is treated as the
individual's income or chargeable gains, and the manner in which these
amounts are chargeable to tax. These rules will be more comprehensive
than the rules in the draft legislation published on 18 January 2008.
16. The law currently allows overseas income and gains to be alienated by a
non-domiciled or not ordinarily resident individual to a third party, such as
an offshore vehicle or a close relative. That alienated income or gains can
then be brought into the UK in such a way that the individual whose
income or gain it originally was has the use or enjoyment of it in the UK
without attracting a charge to tax.
17. Legislation will be introduced that will have effect where an individual
arranges for money or property to be brought into the UK, or services and
benefits to be provided in the UK, that were funded out of untaxed foreign
income or gains. Where that individual, or their immediate family, benefits
in any way then that individual will be taxed on that money, property,
services or benefits under the remittance basis rules of taxation.
18. The definition of an individual’s “immediate family” will be different from the
“relevant person” definition proposed in the draft legislation published on
18 January 2008. It will be limited to spouses, civil partners, individuals
living together as spouses or civil partners and their children or
grandchildren under 18. It will also cover close companies, or foreign
companies that would be close if in the UK, of which any of them are
participators and trusts of which any of them are settlors or beneficiaries.
Non-resident trusts
19. There will be extensive changes to the capital gains tax regime for
non-resident trusts. The new rules will be different from the changes
detailed in the draft legislation published on 18 January 2008.
21. Trustees will be able to make an irrevocable election to rebase assets held
as at 6 April 2008 for the purpose of excluding any part of a chargeable
gain relating to the period before 6 April 2008 from being taxed on non
domiciled beneficiaries.
24. Full details of the new rules are set out in the supplementary document
“Residence and Domicile: Taxation of distributions to beneficiaries of
non-resident trusts.” One of the changes comes into effect on 12 March
2008 (see paragraph 11(d) of the document).
26. The legislation will be amended so these anti-avoidance rules ensure that
UK participators of foreign companies will be taxed on the chargeable
gains accruing to the company irrespective of the participator’s domicile.
The legislation to achieve this was published in draft on 18 January 2008
although some minor changes will be made as a result of the consultation.
28. Currently, income tax charges under the Accrued Income Scheme apply to
domiciled individuals but not to the non-domiciled.
29. Legislation on the Accrued Income Scheme will be amended so that the
income tax charge has effect for non-domiciled individuals as well as
domiciled individuals. The legislation to achieve this was published in draft
on 18 January 2008.
30. Currently, non-domiciled individuals get no capital gains tax relief for
losses arising offshore as the remittance basis of taxation is compulsory
for them with respect to capital gains tax. From 6 April 2008 individuals
will be able to elect in and out of the remittance basis on a year by year
basis so a non-domiciled individual could pay capital gains tax on
unremitted foreign gains in a year they are taxed on the arising basis.
32. Currently individuals paying tax on the remittance basis who borrow
money from a non-UK institution can repay the interest on that loan out of
untaxed foreign income without giving rise to a tax charge on the
remittance basis, even if the loan is advanced into the UK. The draft
legislation published on 18 January 2008 proposed that repayments on
such loans would be treated as a remittance on or after 6 April 2008.
33. The legislation in the Finance Bill 2008 will include grandfathering
provisions such that untaxed relevant foreign income used to fund interest
repayments on existing mortgages secured on a residential property in the
UK, will not be treated as a remittance on or after 6 April 2008. This
grandfathering will have effect for repayments for the remaining period of
the loan, or until 5 April 2028, whichever is shorter. In addition if the terms
of the loan are varied or any further advances made after 12 March 2008
then the repayments will be treated as remittances from that point.
Further advice
34. If you have any questions about this change, please email
offshorepersonal.taxteam@hmrc.gsi.gov.uk or telephone 020 7147 2762.
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
Operative date
6. This new scheme will be based on the existing HM Revenue & Customs
schemes for VAT and import duty (temporary imports and items brought
into the UK permanently by museums and galleries). It will allow for works
of art to be imported either indefinitely or temporarily without giving rise to
a charge to tax on the remittance basis so long as that work of art is on
public display in an approved establishment. Works of art not on display,
but held by approved establishments for the public to see or for
educational purposes, will also be covered by the scheme.
7. This exemption for art is in addition to any exemptions which have effect
for assets more generally.
1. Employees who are taxed on the remittance basis and who receive shares
or options as part of their remuneration, and their employers.
3. Where gains on ERS that this measure will bring within Part 7 are partly
derived from employment duties in the UK, and partly from duties outside
the UK, they will be apportioned appropriately, with gains from ERS
related to duties outside the UK being subject to UK Income Tax to the
extent that they are remitted.
Operative date
5. The measure will have effect on and after 6 April 2008 in respect of
employment-related securities acquired or options granted on or after that
date. Securities acquired or options granted on or before 5 April 2008 will
not be affected.
Further advice
10. If you have any questions about this change, please contact Claire Talbot
on 020 7147 2867 or Tom Rollinson on 020 7147 2866 (email:
shareschemes@hmrc.gsi.gov.uk). Information about Budget measures is
available on the HM Revenue & Customs website at www.hmrc.gov.uk
1. Adults who are UK residents, who have been UK residents for more than
seven of the past ten years, who claim the remittance basis of taxation and
who have unremitted foreign income and gains in excess of £2,000 a year.
Operative date
7. The £30,000 annual tax charge will be payable through the self
assessment system. If the adult pays the £30,000 tax charge from an
offshore source directly to HM Revenue & Customs (HMRC) by cheque or
electronic transfer, the £30,000 will not itself be taxed as a remittance. If
the £30,000 is repaid it will be taxed as a remittance at that point.
9. The tax charge to be introduced from April 2008 will take a different form
from the one set out in the draft legislation published on 18 January. It will
be a tax charge on unremitted income and gains (or a combination of the
two) rather than a stand alone charge. Individuals paying the charge will
choose what foreign unremitted income or gains the £ 30,000 is paid on.
As a result the tax paid will either be income tax or capital gains tax. The
unremitted income or gains upon which the £ 30,000 tax has been paid will
not be taxed again when and if it is eventually remitted to the UK. There
will be ordering rules that determine that untaxed unremitted foreign
income or gains will be treated as remitted before income or gains upon
which the £ 30,000 has been paid.
10. The £30,000 charge will be income tax or capital gains tax and should be
treated as such for the purposes of Double Taxation Agreements. The tax
will also be available to cover Gift Aid donations.
11. Further information on the £30,000 charge, and in particular how it will be
treated by the US under the UK/US double taxation agreement and
applicable US domestic tax law is available on the HM Treasury website
at: www.hm-treasury.gov.uk
Further advice
13. If you have any questions about this change, please email
offshorepersonal.taxteam@hmrc.gsi.gov.uk or telephone 020 7147 2762.
Information about Budget measures is available on the HM Revenue &
Customs website at www.hmrc.gov.uk
You have requested our advice regarding certain of the United States
federal income tax consequences of specific proposed revisions to the current United
Kingdom remittance basis of taxation as applied to United States citizens subject to
that tax. This memorandum responds to that request.
1
Department of the Treasury, Technical Explanation of the Convention Between the Government of
the United States of America and the Government of the United Kingdom of Great Britain and
Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and On Capital Gains.
2
Domiciliaries of the United Kingdom who, for the purposes of United Kingdom tax law, are
"resident but not ordinarily resident" in the United Kingdom may also elect to be taxed on the
remittance basis.
3
In general, employment and other income are subject to graduated rates of 20% and 40%. (There is
also a savings rate of 10% applied to a narrow range of income.)
Resident non-doms whose net liability for United Kingdom tax on non-
United Kingdom source income is less than the RBMC should choose to report their
worldwide income and capital gains on an arising basis (which also provides for
certain allowances not permitted to taxpayers filing on a remittance basis). Any
resident non-dom initially filing on a remittance basis and paying RBMC can amend
his or her filing for a period of up to one year from the date thereof to report
worldwide income and capital gains on an arising basis and receive a refund of any
RBMC paid in excess of net income tax liability. Otherwise the RBMC is not
refundable.
The amount of income and capital gains determined to have been taxed
through the RBMC will be previously "taxed" (or "franked") income if it is later
remitted. For this purpose, remittances will be statutorily determined to be made first
out of income and capital gains upon which RBMC has not been levied ("untaxed"
income and capital gains) until all such income cumulatively arising (and not taxed on
the arising basis) since the beginning of the first year of United Kingdom residency
has been remitted (or, if later, since the beginning of the tax year beginning April 6,
2008). The net effect of this system is that electing resident non-dom taxpayers who
remit the entirety of their cumulative non-United Kingdom source income and capital
gains will pay no more than the relevant United Kingdom income tax rate[s] times
their cumulative pre-foreign tax worldwide net income and capital gains, reduced by
any credits for non-United Kingdom source based foreign tax. All other electing
resident non-doms will pay a lesser amount of United Kingdom tax. To administer
these rules, a system of pools and specific rules will track: (i) the amount of
unremitted non-United Kingdom source income and capital gains upon which RBMC
has been determined to have been levied, (ii) the amount and character of untaxed
unremitted non-United Kingdom source income and capital gains, and (iii) the amount
of source based foreign tax associated with untaxed income and capital gains.4
Analysis of Proposal
Article 24 of the Treaty provides that the United States shall allow
United States residents and citizens a credit against United States federal income tax
4
Subcategories of the pools will track types of income, such as dividends, and the associated
foreign taxes.
Article 24 of the Treaty provides that the United States "shall allow to
a resident or citizen of the United States as a credit against the United States tax on
income the income tax paid or accrued to the United Kingdom by or on behalf of such
citizen or resident."9 The United Kingdom taxes covered by this provision (the
"covered taxes") include: "(i) the income tax; (ii) the capital gains tax; (iii) the
corporation tax; and (iv) the petroleum revenue tax,"10 as well as "any identical or
substantially similar taxes that are imposed after the date of signature of [the Treaty]
in addition to, or in place of, the existing taxes."11
5
Treaty Art. 24(1); Art. 2.
6
All section references are to the Code unless indicated otherwise.
7
Section 901(a), (b)(1).
8
Section 903.
9
Treaty Art. 24(1).
10
Treaty Art. 2(3).
11
Treaty Art. 2(4).
12
Treaty Art. 2(1), (2).
13
Technical Explanation at 19 (emphasis added).
Section 901 permits a credit for income taxes paid or accrued (or
deemed paid) to a foreign country. Regulations promulgated by the United States
Treasury provide detailed guidance on the criteria used to determine whether a foreign
levy is an income tax for purposes of section 901.14 As a threshold matter, whether a
foreign levy qualifies as an income tax is determined independently for each separate
levy imposed by a foreign country.15 In general, to be creditable, a levy must be a tax
and its predominant character must be that of an income tax in the United States
sense.16 In addition, a tax imposed in lieu of an income tax otherwise generally
imposed by a foreign country is treated as an income tax for section 901 purposes.17
i. Whether the RBMC and tax charged on the remittance basis are
separate levies
14
Treas. Reg. § 1.901-2.
15
Treas. Reg. § 1.901-2(a)(1) and (d).
16
Treas. Reg. § 1.901-2(a)(1).
17
Section 903.
18
Treas. Reg. § 1.901-2(d)(1).
19
Id.
20
Id.
A foreign levy is an income tax if and only if (i) it is a tax, and (ii) the
predominant character of that tax is that of an income tax in the United States sense.24
A foreign levy is a tax in lieu of an income tax only if (i) it is a tax, and (ii) it is in
substitution for an income tax. Whether tax charged on the remittance basis, as
21
Id.
22
Id.
23
Id.
24
Treas. Reg. § 1.901-2(a)(1).
25
Treas. Reg. § 1.901-2(a)(2)(i).
26
Id.
27
Id.
28
Treas. Reg. § 1.901-2(a)(ii)(B).
29
1973-2 C.B. 268.
A foreign tax satisfies the gross receipts requirement if, judged on the
basis of its predominant character, it is imposed on the basis of gross receipts or gross
receipts computed under a method that is likely to produce an amount that is not
30
Treas. Reg. § 1.901-2(a)(1)(ii).
31
Treas. Reg. § 1.901-2(a)(3).
32
Treas. Reg. § 1.901-2(b)(1).
33
Treas. Reg. § 1.901-2(b)(2)(i)(A).
34
Treas. Reg. § 1.901-2(b)(2)(i)(B), (C)
A foreign tax satisfies the net income requirement if, judged on the
basis of its predominant character, the base of the tax is computed by reducing gross
receipts to permit recovery of either (i) the significant costs and expenses (including
significant capital expenditures) attributable, under reasonable principles, to such
gross receipts, or (ii) such significant costs and expenses computed under a method
that is likely to produce an amount that approximates, or is greater than, recovery of
such significant costs and expenses.36 The remittance basis of taxation generally
allows the same deductions and credits for particular types of income and capital
gains as those allowable under the arising basis of taxation.37 For example,
remittances of business profits are taxed after a deduction of allowable expenses.
Similarly, the RBMC will be levied on income and capital gains after allowing those
credits and deductions that would be allowable had such income and capital gains
been taxed on the arising basis. Accordingly, we believe the remittance basis of
taxation, as amended to include the RBMC, should satisfy the net income requirement
and therefore should be viewed as having the predominant character of an income tax
in the United States sense.
35
Treas. Reg. § 1.901-2(b)(3).
36
Treas. Reg. § 1.901-2(b)(4).
37
Taxpayers who file on the remittance basis are not entitled to certain income tax personal
allowances or the annual exemption for chargeable capital gains which are available to United
Kingdom resident taxpayers who file on an arising basis.
38
Section 903.
iii. Whether the RBMC, if treated as a separate levy from the tax
charged on a remittance basis, is an income tax
39
Treas. Reg. §1.903-1(a), (b).
40
Treas. Reg. § 1.901-2(a)(2)(i).
41
Treas. Reg. § 1.901-2(a)(1)(ii).
42
Treas. Reg. § 1.901-2(a)(3).
43
Treas. Reg. § 1.901-2(b)(1).
44
Under the Treasury Regulations, amounts paid in excess of a taxpayer's liability under foreign law
(determined so as to reduce, over time, the taxpayer's expected liability under foreign law), are not
amounts of tax paid. Treas. Reg. § 1.901-2(e)(5). Accordingly, a taxpayer who elects to file on a
remittance basis for a particular year and pay the RBMC and whose tax liability for that year is, as
a result, more than it would have been on an arising basis, may be treated as having paid only the
amount of tax that would have been due under the arising basis.
C. Limitation on the use of credits for the RBMC under the Code and
the Treaty
45
Section 904(a).
46
Section 904(d)(1). In general, passive category income is any income received or accrued by any
person which is of a kind which would be foreign personal holding company income as defined in
section 954(c). This includes, for example, dividends, interest, rents and royalties unless derived
in the active conduct of a trade or business, certain capital gains, and income from notional
principal contracts. General category income is any income that is not passive category income.
Section 904(d)(2)(A)(ii).
47
Treas. Reg. § 1.904-6(a)(1)(i).
48
Id.
49
Id.
50
Id.
51
Treas. Reg. § 1.904-6(a)(1)(ii).
52
Section 904(d)(2)(F); Treas. Reg. § 1.904-4(c)(1).
53
Id.
iii. The use of the RBMC as a credit against United States source
income under the Treaty
Applying these rules, United States taxpayers will generally credit the
RBMC against United States citizenship-based tax to the extent the RBMC may be
allocated to certain United States source investment income and capital gains, because
there is no or relatively low United States source-based tax on such income and
capital gain.56 The credit, however, will often be limited to an amount less than the
RBMC because the United Kingdom rates of tax on these types of income currently
exceed the average United States effective tax rates at which foreign tax credits are
allowed. Moreover, to the extent the United States treats the RBMC as allocable to
United States source business profits attributable to a permanent establishment in the
United States or to gain on the sale of real estate located in the United States, no credit
54
Treas. Reg. § 1.904-4T(c)(3).
55
The United Kingdom is not bound to provide a credit for United States federal income taxes with
respect to income from sources without the United States, as determined under United Kingdom
law. Treaty Art. 24(6)a).
56
It may not be possible to credit the RBMC against United States source dividend income of United
States citizens who are eligible to be taxed at a 15% rate under section 1(h)(11).
iv. The effect of the difference in taxable year between the United
States and the United Kingdom
Concluding Views
We expect that the United States Treasury and IRS will in due course
provide authoritative guidance on some or all of the issues analyzed above, which
guidance may well have retroactive effect. Based on our analysis and subject to the
limitations on the use of credits described herein, it is our view that under current
United States law (including the Treaty), and in the absence of such guidance, the
RBMC should be treated, for United States federal income tax purposes, as a foreign
tax creditable against United States federal income tax. However, given the
limitations on the use of foreign tax credits against United States federal income tax
provided in the Code and the Treaty, and, more importantly, given that the rates at
which the RBMC will be generally imposed is currently higher than the average
effective United States federal income tax rate of individuals, most United States
citizens will not be able to credit against their United States federal income tax all of
the RBMC they pay. The portion of RBMC that cannot be used as a credit will vary
depending on a number of factors, including the amount and character of the income
of any particular United States citizen and on the resolution of various interpretative
issues under Treasury Regulations and the Treaty described above.
57
Treas. Reg. § 1.904-6(a)(1)(iv).