UK Finance Act 2008 Promises 'Dramatic' Tax Changes

by Robert Lee, Tax-News.com, London

23 July 2008

This year’s UK Finance Bill, which was expected to have received Royal Assent on 21st July, completing the legislative implementation of the government’s Pre-Budget Report and Budget announcements, changes the UK’s tax landscape in many ways, according to PricewaterhouseCoopers LLP.

“This year’s Finance Act has made some dramatic and far reaching changes to our tax system, commented John Whiting, tax partner, PwC.

"Unlike most recent Acts, it will affect the position of almost all taxpayers – it is hardly surprising that it is half as long again as last year’s Act," he added.

The main areas of change within the 166 sections and 46 schedules of the Finance Act (some 451 pages compared to 309 last year) are as follows:

Income tax:

• Basic rate reduced to 20%
• Starter rate of 10% abolished
• Compensatory increases in personal allowances
• Transitional relief on gift aid for charities

Business tax:

• Main corporation tax rate set at 28% for next year
• Small companies' rate increased to 21%
• Major recast of capital allowances, including phasing out of industrial/agricultural buildings allowances, reducing the main rate of allowance on plant and machinery from 25% to 20% and introducing annual investment allowances (100% allowance on the first £50,000 of plant investment)

Capital gains tax (CGT):

• Single rate of CGT at 18%
• Entrepreneurs' relief introduced: GBP1mn at 10%

Inheritance tax:

• Transfer of unused nil-rate band from a pre-deceased spouse

Excise duties:

• First rise in spirits duty since 1997

Residence and domicile:

• Major recast of the way the 'non-doms' (people who are resident in the UK but whose real home is overseas) are taxed

HMRC powers:

• New penalty regime extended to all taxes and a similar penalty regime introduced for failure to notify HMRC on time about tax liabilities
• Wide new powers of inspection for HMRC, including access to business premises, information gathering, records checking and set off

"Although the Finance Act is on the statute book, there is still much to be done in some areas to make the new rules workable," Whiting observed.

"The non-dom rules will need changing and there is a lot more to come on HMRC powers. Next year's Act is already bulking up!" he concluded.

Recommended