The Budget will have made the chancellor few new friends at home or abroad, says Peter Vaines
Alistair Darling’s first Budget was a pretty dull affair—and it needed to be after the excitement caused by his Pre Budget Report in October. All those nondoms queuing at the ports with their works of art under their arms was a sorry sight. I thought it would make a change to see a new face at the dispatch box delivering a Budget speech after all these years, but unfortunately Gordon Brown was strategically placed, always in shot, probably just to remind everybody that he is really chancellor of the exchequer as well but he has this new chap to make the speech for him. Darling/Brown announced that he wanted to welcome non-doms to this country— and his welcome is manifested by a bill for £30,000 and a whole load of trouble. “Welcome” must have a strange Gaelic meaning unknown to the rest of us. He also said that he wants to do more to support small- and medium-sized enterprises—so he is putting up their tax rate this year, just as he did last year, while reducing the corporation tax rate for larger businesses. Maybe we need a glossary.
CARROTS AND ENVY
The prevailing view seems to be that the effect of his proposals for the non-doms will be a reduction in tax revenues, but it is all in a good cause even if we have to close the odd hospital as a result. Much better not to have rich people here spending their money and increasing our living standards. It cannot be good to have those with a bigger bite of life’s carrot being visible to the rest of us. It promotes envy which is of course a sin. Darling/Brown clearly does not think their presence promotes admiration and inspiration— which I guess is why they are all leaving.
Income splitting may have been deferred and interest on some offshore mortgages saved, but the £30,000 charge on the nondoms who have been resident in the for a while is confirmed. However, there is a clever variation to turn it into a tax by attributing it to specific income thereby almost guaranteeing a double tax credit in other countries, notably the . This is nothing short of brilliant. Who would have thought they could introduce a new tax here on Americans and make the government pay it?
The £30,000 charge can now be paid out of foreign income without being a taxable remittance, but not if you bring the money here to pay the tax. You have to send the money direct to HM Revenue & Customs (HMRC) from a foreign account. The cynical view is that this is just a way of HMRC identifying foreign bank accounts without having to ask, thereby giving it a valuable source of further enquiry.
TRUSTS AND TAX RETURNS
A highly sensitive feature of the draft legislation had been the requirement for nondoms to provide details of trusts established since 1991. This has been abandoned—too late of course, the damage has been done— and HMRC have not improved the position by confirming their right to make enquiries under self assessment to determine the accuracy of a tax return. Next year even non-doms with no tax liability will have to fill in a tax return, claim the remittance basis and pay the £30,000, so the whole of the self assessment machine will apply to them.
This seems fair enough to me. If you are resident here it is hardly unreasonable to have to file a tax return—except that this is not exactly the time to be making things difficult. What about extracting the maximum of feathers with minimum of hissing? Darling/Brown seems to be achieving exactly the reverse. The changes to the taxation of non resident trusts are much less burdensome than had been suggested and the end result is little more than the substitution of a remittance basis for trust gains of foreign domiciled beneficiaries rather than a complete exemption. A reasonable change which would not have ruffled any feathers or caused any hissing if only he had suggested it to start with. The fright over the day counting rules for determining residence was another paper tiger which need never have arisen. The rule will now be that, instead of ignoring days of arrival and departure, you count nights. Again, hardly enough to get excited about and everyone ought to be grateful at least for the certainty. It is to be hoped that the new hopelessly discredited IR20 will soon be rewritten to provide a sensible practical framework.
MODEST RELIEF
The reduction in the capital gains tax rate to 18% is going ahead, with the introduction of a modest Entrepreneur Relief, but pity those who sold their businesses last year for a combination of cash and loan notes. Many will have their tax rate doubled on the disposal of their loan notes for no good reason. Those with non QCB loan notes will only get the Entrepreneur Relief if they continue to satisfy the conditions for the relief, ie by holding more than 5% of the shares in the company, which of course will never apply because the whole point of their sale was to dispose of their shareholding. Let us hope there is still scope for some amendment here. Some will welcome the reduction in the tax rate, although it beats me why rich people have the tax on their second (and third) homes halved whereas small employee shareholders have their tax rate doubled when they sell their shares. There was a lot more important stuff in this Budget like carrier bag abolition and the special severance pay for Ken Livingston but these will just have to wait. I doubt that the chancellor will have made any friends with this Budget. Many will feel that with the possibility of a global economic meltdown, he might have concentrated on measures which would do positive good, but maybe he will be introducing them soon.
