By MARTIN JONES 09/10/2007
It was widely expected that Pre Budget Report 2007 would respond specifically to the policies announced by the Conservative party, in relation to stamp duty and IHT.
The transferability of allowances for inheritance tax between all married couples and civil partners, benefiting immediately from double the IHT allowance (equivalent to £600,000), in addition to entitlement to relief on transfers between spouses will hopefully simplify the system for those families who want to take advantage of these reliefs. As each individual currently has a nil rate band of £300,000, then this is not an increase in the total funds which can pass to the next generation free from IHT per family but eases the position for families on first death who have not undertaken Will planning.
The introduction of a flat tax rate of 18% for capital gains tax and the removal of taper relief and indexation allowance from April 2008 will be disappointing for many investors, particularly employees holding shares in their employer and currently benefiting from business taper relief; the change effectively increases the tax rate for shares held for more than 2 years by employees by 80%. The simplification of the capital gains tax regime is welcomed, but will result in increased tax liabilities for many and people will need to decide whether disposals should be made before the changes are introduced. Delaying the introduction of changes in the capital gains tax rate to April 2008 could influence the market by forcing sales in the next six months
The long awaited ongoing review into residence and domicile has been completed, although further consultation is announced on the detail and a wider range of options. UK residents who are non-domiciled will now have to pay an annual charge of £30,000 to ensure that they contribute in respect of the foreign income and gains which they keep abroad which is not currently subject to UK tax. The charge will apply for those who have been resident in the UK for more than 7 years and consultation will consider whether those who have been resident in the UK for more than 10 years should contribute more. This announcement is in line with that announced by the Conservative party but the 7 year and 10 year policy may be difficult to enforce.