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In his first Pre-Budget Report statement, Chancellor Alistair Darling reiterated the Government's continued theme of promoting fairness and opportunity for all.

The 2007 Pre-Budget Report and Comprehensive Spending Review sets out the steps the Government is taking to promote employment opportunity for all, tackle child poverty, support families to balance their work and family lives and promote saving and ensuring security for all in old age. These include:

• ensuring that all married couples and civil partners can benefit from double the standard inheritance tax allowance - £600,000 immediately, rising to £700,000 by 2010-11 in addition to full spouse relief;
• raising the child element of the Child Tax Credit by a further £25 in April 2008 and a further £25 in April 2010;
• the national roll-out from April 2008 of the In-Work Credit at a rate of £40, retaining a rate of £60 in London;
• reforming capital gains tax by introducing a single rate of 18 per cent from 2008-09;
• withrdrawing business asset taper relief;
• from 1 November 2009, the current per seat air passenger duty charge will be replaced with a charge per plane;
• the benefit charge on employees whose private fuel is paid for by their employer will increase from April 2008 with the “multiplier” figure used for the benefit calculation increasing to £16,900;
• the initial King review of low carbon cars has been published and further measures are scheduled for the 2008 Budget;
• arrangements that allow employers to avoid NIC on pay relating to employees holidays by paying it through a separate fund operated by a third party will be blocked from 30 October 2007. However, relief for employees in the “construction sector” will to continue for a transitional period of five years;
• moves to limit “income splitting” of small company profits (highlighted by the case of Jones v Garnett) are to be introduced from April 2008 and a consultation paper on how this is to be achieved is to be issued “shortly after the Pre-Budget Report”;
  
• reforms to the residence and domicile rules to make the current arrangements operate more fairly; and
• further reforms to modernise the tax system, and a number of measures to clamp down on tax fraud and avoidance.

The general response from the tax profession regarding the proposed inheritance tax changes appears to be that they merely formalise what is already the case for many couples applying tax planning measures. Commenting on the measures, Ian Maston, director of inheritance tax at tax experts Chiltern said: "This change is welcome because it will save couples the need to jump through hoops when planning their Wills. Prudent people would have already arranged their Wills to achieve this anyway, so the Chancellor's announcement won't save them a penny."

With regards to the withdrawal, from April 2008, of business asset taper relief, it is generally felt that this will strike far beyond private equity and could cause serious damage to companies large and small, their employees, shareholders and self-employed people.

According to PKF Tax Partner, Peter Penneycard "The abolition of Capital Gains Tax taper relief and introduction of a flat rate of 18% was a major surprise, which reversed a major relief first introduced by Gordon Brown in 1998. However in abolishing the relief after 10 years, the Chancellor has done so at exactly the point when a non-business asset would qualify for its maximum relief. Arguably Mr Brown built in a natural 'self-destruction' point which deprives people of the maximum benefit". Business owners looking to sell-up can now do so at a time of their choosing without having to hang on to earn the maximum taper relief. The difference between business and non-business assets has also been removed, so at a stroke, the whole system has become infinitely simpler for hundreds of thousands of owners of businesses.

Commenting on the capital gains tax measures, Peter Vipond, Association of British Insurers Director of Financial Regulation and Taxation, said: “The introduction of a flat rate of CGT of 18 per cent will greatly simplify the tax system for individuals.  Combined with the keeping of an annual allowance of £9,200 before tax is paid, this should provide encouragement to save beyond the current ISA wrapper."

Finally, the Chancellor's announcement that non-domiciles will have to pay either a flat fee of £30,000 or UK tax on their unremitted income and gains once they have been in the country for seven years is felt to be politically astute, albeit he could be accused of stealing the Tory policies. He can tell the country he has addressed the issue and, although non-domiciles who have already been here for seven years will be affected in April 2008, the very wealthy who are a source of investment in the country will not be driven out. For them the flat fee will be small change. While the measure won't raise huge amounts for the Treasury, the Chancellor has done what the Tories have suggested so they can't accuse him of skirting the issue, although they may suggest that he has stolen their idea.

The 2008-09 rates and allowances for Income Tax, National Insurance Contributions, the Working and Child Tax Credits will be published after the September inflation rate becomes available.

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Chiltern plc

PKF

Association of British Insurers