Pre budget report summary
Discussion
Pensions
Spreading of tax relief for pension contributions
Legislation will be introduced in Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented. This measure will have effect for payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007.
Currently employers generally get relief against their taxable profits for contributions paid to a registered pension scheme. Relief is generally given for the chargeable period in which the contributions are paid however some large contributions are spread over a period of up to 4 years.
The new measure will ensure that the spreading of contributions cannot be avoided by routing them through a new company.
Pension - Technical Improvements
The pre budget report has today announced new legislation which will act as easements to the current legislation set out in Finance Act 2004, 2005, 2006 & 2007. These changes are highly technical in nature and full details will follow however they relate to the following 4 areas:
1) The lifetime allowance test rules in relation to the benefit crystallisation event No.3
2) Protection of lump sums in excess of 25% of the fund where additional benefit accrual takes place after 6 April 2006
3) Definition of investment regulated pension schemes
4) Ensuring that UK tax relieved pension savings held in overseas pensions receive the same protection from IHT as funds held in UK registered pension schemes.
Inheriting Tax Relieved Pension Savings
Legislation will be introduced in Finance Bill 2008 to ensure that tax relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment tax charges.
This measure will have effect for surrenders made on or after 10 October 2007 and for increases in pension rights attributable to the death of a member when the member dies on or after 6 April 2008. The IHT provisions will also have effect when the member dies on or after 6 April.
There are existing rules to prevent the abuse of pension tax relief's through members surrendering rights under registered pension schemes during their lifetime or through the reallocation of assets after a member’s death. The proposed legislation extends the existing anti-avoidance rules:
• to impose unauthorised payment charges when the member surrenders rights to payments under a lifetime annuity or dependant’s
• to impose unauthorised payments charges when a member who has rights to a scheme pension, a lifetime annuity, a dependant’s scheme pension or a dependant’s annuity, dies; and a connected person becomes entitled to an increase in their pension rights
• to impose an IHT charge where a member with a scheme pension, a lifetime annuity, a dependant’s scheme pension or a dependant’s annuity dies aged 75 or over and there is an increase in pension rights attributable to the death of a member or an unauthorised lump sum payment in respect of the deceased’s pension scheme arrangement.
Inheritance Tax
Legislation will be introduced in Finance Bill 2008 to allow a claim to be made to transfer any unused IHT nil-rate band on a person’s death to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007. This will apply where the IHT nil-rate band of the first deceased spouse or civil partner was not fully used in calculating the IHT liability of their estate. When the surviving spouse or civil partner dies, the unused amount may be added to their own nil-rate band.
The IHT provisions for alternatively secured pensions (ASP) will also be changed. Currently, a charge arises on left-over ASP funds once a relevant dependant’s pension benefits cease and the rates of tax are those applying at the date of that event rather than as at the date of death of the scheme member. This rule will be modified so that, if the IHT nil-rate band was not fully used when the original ‘owner’ of the ASP died, the same proportion that was unused will be applied to the amount of the nil–rate band in force at the date of the later event and be available against the
ASP.
A transfer of unused nil-rate band from a deceased spouse or civil partner (no matter what the date of their death) may be made to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007.
Capital Gains Tax Reform
Legislation will be introduced in Finance Bill 2008 to give effect to a new single rate of charge to CGT at 18 per cent. A number of changes to simplify the capital gains tax regime will be made, including:
The withdrawal of taper relief;
The withdrawal of indexation allowance;
The abolition of the ‘kink test’ for assets held at 31 March 1982;
Abolition of halving relief; and
Simplification of the share identification rules.
The Annual Exempt Amount (AEA) will remain. The current level for 2007- 08 is £9,200 for individuals and £4,600 for some trustees. The AEA for 2008-09 will be announced at Budget 2008. Other CGT relief's, continue to have effect.
The measure will have effect for disposals made on or after 6 April 2008. The current CGT rules continue to apply for disposals made up to 5 April
Residence & Domicile Review
Legislation will be introduced in Finance Bill 2008 to:
Introduce an additional tax charge for individuals using the remittance basis of taxation;
End the automatic entitlement to certain personal allowances for individuals resident in the UK who are using the remittance basis;
Ensure that when determining if an individual is resident in the UK in any year, days of arrival and departure are counted; and
Address a range of anomalies in the remittance basis.
The remittance basis of taxation can apply to those UK residents who are not domiciled in the UK or who are not ordinarily resident in the UK. The remittance basis provides that such residents will be taxed on foreign income and gains only when they are remitted to the UK.
All these changes will apply on or after 6 April 2008.
Income Tax Self Assessment - Increase in Payment on Account Threshold
This measure doubles, from £500 to £1000, the threshold below which taxpayers do not need to make in-year payments on account of their annual income tax liability under the Income Tax Self Assessment system.
This measure will have effect on and after 6 April 2009 for income tax due for 2009-10. The first Payment On Accounts affected will therefore be those due in January 2010 and July 2010.
Spreading of tax relief for pension contributions
Legislation will be introduced in Finance Bill 2008 to ensure that the rules that spread tax relief for large employer pension contributions relative to their contribution in the previous year cannot be circumvented. This measure will have effect for payments made on or after 10 October 2007 under binding obligations entered into on or after 9 October 2007.
Currently employers generally get relief against their taxable profits for contributions paid to a registered pension scheme. Relief is generally given for the chargeable period in which the contributions are paid however some large contributions are spread over a period of up to 4 years.
The new measure will ensure that the spreading of contributions cannot be avoided by routing them through a new company.
Pension - Technical Improvements
The pre budget report has today announced new legislation which will act as easements to the current legislation set out in Finance Act 2004, 2005, 2006 & 2007. These changes are highly technical in nature and full details will follow however they relate to the following 4 areas:
1) The lifetime allowance test rules in relation to the benefit crystallisation event No.3
2) Protection of lump sums in excess of 25% of the fund where additional benefit accrual takes place after 6 April 2006
3) Definition of investment regulated pension schemes
4) Ensuring that UK tax relieved pension savings held in overseas pensions receive the same protection from IHT as funds held in UK registered pension schemes.
Inheriting Tax Relieved Pension Savings
Legislation will be introduced in Finance Bill 2008 to ensure that tax relieved pension savings diverted into inheritance using scheme pensions and lifetime annuities are subject to unauthorised payment tax charges.
This measure will have effect for surrenders made on or after 10 October 2007 and for increases in pension rights attributable to the death of a member when the member dies on or after 6 April 2008. The IHT provisions will also have effect when the member dies on or after 6 April.
There are existing rules to prevent the abuse of pension tax relief's through members surrendering rights under registered pension schemes during their lifetime or through the reallocation of assets after a member’s death. The proposed legislation extends the existing anti-avoidance rules:
• to impose unauthorised payment charges when the member surrenders rights to payments under a lifetime annuity or dependant’s
• to impose unauthorised payments charges when a member who has rights to a scheme pension, a lifetime annuity, a dependant’s scheme pension or a dependant’s annuity, dies; and a connected person becomes entitled to an increase in their pension rights
• to impose an IHT charge where a member with a scheme pension, a lifetime annuity, a dependant’s scheme pension or a dependant’s annuity dies aged 75 or over and there is an increase in pension rights attributable to the death of a member or an unauthorised lump sum payment in respect of the deceased’s pension scheme arrangement.
Inheritance Tax
Legislation will be introduced in Finance Bill 2008 to allow a claim to be made to transfer any unused IHT nil-rate band on a person’s death to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007. This will apply where the IHT nil-rate band of the first deceased spouse or civil partner was not fully used in calculating the IHT liability of their estate. When the surviving spouse or civil partner dies, the unused amount may be added to their own nil-rate band.
The IHT provisions for alternatively secured pensions (ASP) will also be changed. Currently, a charge arises on left-over ASP funds once a relevant dependant’s pension benefits cease and the rates of tax are those applying at the date of that event rather than as at the date of death of the scheme member. This rule will be modified so that, if the IHT nil-rate band was not fully used when the original ‘owner’ of the ASP died, the same proportion that was unused will be applied to the amount of the nil–rate band in force at the date of the later event and be available against the
ASP.
A transfer of unused nil-rate band from a deceased spouse or civil partner (no matter what the date of their death) may be made to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007.
Capital Gains Tax Reform
Legislation will be introduced in Finance Bill 2008 to give effect to a new single rate of charge to CGT at 18 per cent. A number of changes to simplify the capital gains tax regime will be made, including:
The withdrawal of taper relief;
The withdrawal of indexation allowance;
The abolition of the ‘kink test’ for assets held at 31 March 1982;
Abolition of halving relief; and
Simplification of the share identification rules.
The Annual Exempt Amount (AEA) will remain. The current level for 2007- 08 is £9,200 for individuals and £4,600 for some trustees. The AEA for 2008-09 will be announced at Budget 2008. Other CGT relief's, continue to have effect.
The measure will have effect for disposals made on or after 6 April 2008. The current CGT rules continue to apply for disposals made up to 5 April
Residence & Domicile Review
Legislation will be introduced in Finance Bill 2008 to:
Introduce an additional tax charge for individuals using the remittance basis of taxation;
End the automatic entitlement to certain personal allowances for individuals resident in the UK who are using the remittance basis;
Ensure that when determining if an individual is resident in the UK in any year, days of arrival and departure are counted; and
Address a range of anomalies in the remittance basis.
The remittance basis of taxation can apply to those UK residents who are not domiciled in the UK or who are not ordinarily resident in the UK. The remittance basis provides that such residents will be taxed on foreign income and gains only when they are remitted to the UK.
All these changes will apply on or after 6 April 2008.
Income Tax Self Assessment - Increase in Payment on Account Threshold
This measure doubles, from £500 to £1000, the threshold below which taxpayers do not need to make in-year payments on account of their annual income tax liability under the Income Tax Self Assessment system.
This measure will have effect on and after 6 April 2009 for income tax due for 2009-10. The first Payment On Accounts affected will therefore be those due in January 2010 and July 2010.
From what I've been hearing there's a few private client solicitors who are very worried that a VERY large chunk of their work has just vanished, and that they may be looking for new jobs.
However the realist in me thinks that these changes will be, in some way, ill thought out, and that they'll create more questions than they answer
However the realist in me thinks that these changes will be, in some way, ill thought out, and that they'll create more questions than they answer
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