FL Memo Ltd © 2007

Tax Memo 2007-2008 Newsletter Issue 1

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Income tax    

 

Fuel benefit charge

See TM ¶3304

When private fuel is provided for a company car, the benefit in kind is calculated by multiplying a fixed sum by a percentage which is based on the car’s carbon dioxide emissions.

From 6 April 2008, this fixed sum will increase to £16,900. 

 

State second pensions and NIC

See TM ¶3662, ¶5035

From 6 April 2009, an Upper Accrual Point (UAP) will be introduced. This will be the maximum amount of earnings which qualify for state pension benefits, and will be lower than the current limit (the upper earnings threshold).

The practical effect of this will be to:

- increase the NIC burden on contracted out occupational pension schemes. (Currently, lower levels of NIC are payable up to the upper earnings limit. However, from 2009, the normal limits of NIC will commence once the UAP is reached); and

- complicate year end reporting of earnings (¶4704).

 

Pensions

Minor technical improvements

See TM ¶3792+

The following changes are being made as part of the continuing refinement to the registered pension rules. 

The effective date for all of these changes is 6 April 2006.

 

Area of pension rules	Change	¶¶
Lifetime allowance test	No test will apply where a pension is increased within certain bounds (i.e. a normal rate of increase measured over a 12 month period)	¶3792
Member-directed schemes	Definition changed so that larger schemes, where members have no realistic prospect of influencing the scheme’s investment decisions, are no longer treated as member-directed	¶3818
Protection for excessive lump sums	Schemes no longer have to calculate whether relevant benefit accrual has taken place	¶3840

 

Anti-avoidance - inheriting pensions

See TM ¶3869, ¶6589

Following the anti-avoidance rules introduced in Budget 2007 relating to alternatively secured pensions, the Government has now gone further to prohibit the passing on of a person’s pension savings free of tax.

The rules combat this avoidance through the use of both income tax and inheritance tax charges.

A surrender, on or after 10 October 2007, by the member of his rights to payments from a lifetime annuity or dependant’s annuity will be subject to an unauthorised payment income charge.

Secondly, any increase (from 6 April 2008) to a member’s pension rights (under a scheme pension or lifetime annuity), resulting from the death of another member who is connected with him, will be taxable unless the scheme has at least 20 members and every member gains at the same rate. All such increases will be treated as an unauthorised payment, with a further liability to inheritance tax where the deceased member died on or after 6 April 2008 aged at least 75 (with an offset for the income tax charge).

 

Residence and domicile review

See TM ¶4156+

From 6 April 2008, the following changes which target foreign individuals are due to take place.

 

Area	Change	¶¶
Days of arrival and departure	These will be counted as days of residence	¶4156
Remittance basis of taxation	Persons who have been resident in the UK for at least 7 years will only be eligible to claim the remittance basis if they pay an annual £30,000 charge Otherwise the arising basis will apply to all of their income	¶4200
	UK residents who are either non-domiciled or not ordinarily resident, and have unremitted foreign income in excess of £1,000 a year, will no longer be able to claim the personal allowance, married couples allowance or blind person’s allowance The payment of the annual charge (see above) has no effect on the availability of these allowances	¶4390
	It will no longer be possible to remit income tax-free by claiming the remittance basis in one year and not in the next	¶4204
	The source ceasing rule will be abolished so that if a source of income ceases in one year, it cannot be remitted to the UK free of tax in a following year	¶4208
	Future action (subject to consultation) will target the use of certain offshore trust and company structures by non-domiciles Current anti-avoidance legislation will also be extended to include non-domiciles

 

Irish income and the remittance basis

See TM ¶4202, ¶4252

Taxpayers who claim the remittance basis are only liable to tax on foreign income when it is remitted to the UK.

From 6 April 2008, the exclusion of Irish investment income from the remittance basis is to be removed.

In addition, the restriction on non-domiciled persons who earn income from an Irish employer will also be lifted, so that they too can also enjoy the remittance basis. 

 

Interest relief on qualifying loans

See TM ¶4368

Tax relief is available when a loan is taken out in order to fund the acquisition of a business interest e.g. a partnership interest or close company shares. A tax saving scheme has been promoted which accelerates tax relief when interest on such a loan is paid in advance. 

From 9 October 2007, no tax relief will be available on interest payments which relate to a later tax year than that in which they are paid.

Legislation will be included in Finance Bill 2008.

 

Payments on account

See TM ¶4504

From 2009/10, interim payments on account will not be required where the net tax liability for the previous year was less than £1,000 (currently this threshold is £500).

The first payment to be affected will be that due in January 2010.

 

Memo points The net tax liability is the total amount of income tax and Class 4 NIC as reduced by amounts deducted at source.

 

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