UK Chancellor of the Exchequer, Alistair Darling has announced that the government intends to forge ahead with its controversial plans to introduce a new tax scheme for non-domiciles, albeit with some concessions, in a budget speech that otherwise contained few surprises concerning the tax regime for businesses in the UK.
In his first budget speech since taking over the job from Gordon Brown last year, Darling informed the House of Commons on Wednesday afternoon that the government will implement the package of tax reforms concerning residents born outside of the UK, announced in the 2007 Pre-Budget Report, "subject to some changes made in the light of consultation".
Under the new legislation, which will go into effect in April 2008 as planned, there will be an annual GBP30,000 charge on remittance basis users who have been resident in the UK for more than 7 out of the past 10 years.
In addition, tax free personal allowances for these individuals will be removed, day counting rules will be tightened to establish UK residence, and a package of further "loophole closing measures" will be introduced.
Key changes to the original proposals announced in the PBR will mean that income and gains in offshore trusts will only be taxed when they are remitted to the UK, even if these come from UK assets. The Chancellor also clarified the government's position regarding children, who will not be liable to the GBP30,000 charge.
Further changes to the non-dom tax proposals will mean that: the GBP30,000 charge should be creditable against foreign tax; art works brought into the UK for public display or for repair and restoration will face no new tax charges; where art works owned by offshore trusts are sold in the UK, tax will only be paid when the trust remits the gain to the UK; and people with unremitted offshore income and gains of under GBP2,000 will be exempt from the GBP30,000 charge and the changes to personal allowances.
According to Darling, the rules in this area will not be "substantially revisited" for the rest of this or the next Parliament.
"We welcome the contribution made by people born outside the UK who choose to come and work here. They are an important and central contributor to our economy’s growth and prosperity," Darling told the House.
However, he went on to add that: "I believe that it is right and fair that they should, after 7 years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents."
"Beyond that, as I have said before, we will not seek to charge UK tax on offshore income or capital gains that is not brought into the UK," Darling told MPs.
Most of Darling's other announcements in the sphere of taxation also confirmed proposals previously announced by the government in last year's PBR, including the new 18% flat rate of capital gains tax, due to go into effect in the 2008/9 tax year.
However, he revealed that a new "entrepreneurs' relief" will reduce the effective tax rate on some gains to 10%.
The Chancellor also reiterated the government's commitment to reducing the general rate of corporation tax to 28% from 30%, effective April 2008, in tandem with a 1% rise in the Small Companies rate to 21%.
Overall, the 2008 budget has received a mixed reaction from tax experts and business advisors. On the one hand, Darling's decision not to burden companies with complex new tax initiatives has generally been welcomed.
But on the other, the Chancellor has been criticised for missing another opportunity to simplify the tax system.
In response to the Budget, Richard Collier-Keywood, UK head of tax, PricewaterhouseCoopers LLP, commented:
“Today’s Budget will be of some relief to UK business because it contained few major surprises. This was particularly important given the amount of change already in-hand. However, with 270 pages of supplementary Budget notes from HM Treasury, it does not appear that there has been significant progress towards tax simplification."
“One key feature of this Budget is that although the Chancellor is, unfortunately, still introducing new provisions to tax non-domiciliaries, we are pleased to note that he has amended the proposals to relieve some of the worst effects of the detail of the new rules. These changes, however, will still have major long-term effects on the UK economy.”
The full text of the UK Budget report can be found in the Tax News Resources section.
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