Chancellor Alistair Darling has pushed ahead with plans to hit non-domiciled residents with a £30,000 annual tax, with the levy kicking in once they have lived in the UK for seven years.
The non-dom issue has been much debated in recent weeks and, for Ashley Crossley, tax partner at Baker & McKenzie, the Budget announcement came from a chancellor bowing to City pressure.
“The Government has watered down its half-baked proposals on non-doms in the face of fierce opposition from the City,” he said. “Disclosure of offshore assets proposed by the Government caused widespread concern among the non-dom community and the Government has reacted to that.”
The Budget report stated that non-dom income and gains held in offshore trusts will only be taxed when they are remitted to the UK, even if these come from UK assets, and clarified that children will not be liable for the £30,000 charge.
The report also clarified that art works brought into the UK for public display or restoration will not face new charges, while those with unremitted offshore income and gains of less than £2,000 will be exempt from the £30,000 charge.
That said, Crossley added: “Non-doms are still considering leaving, which is the last thing London needs in the face of the global credit crunch.”
Withers wealth planning partner Stuart Skeffington said that, although the Budget had seen a softening of certain non-dom provisions initially announced, “it remains to be seen whether these changes will be sufficient to appease the non-dom community”. Islamic financeThe Government underlined its commitment to the Islamic finance sector, promising to examine the possibility of a sovereign sukuk as well as a consultation on stamp duty tax relief on alternative finance investment bonds.
Norton Rose tax partner John Challoner said both measures ;will ;give ;a considerable ;boost ;to the UK’s Islamic finance initiative.
“Last year saw legislation which permits UK companies to issue sukuks, which are equivalent to Islamically compliant bonds,” said Challoner. “The legislation, however, did not extend to removing the stamp duty land tax [SDLT] charges, which would make sukuks uneconomic where the assets underlying the bonds are UK land and buildings.”
For Rahail Ali, global head of Islamic finance at Lovells, the Budget announcements reinforced the UK’s desire to be pivotal in the wholesale Islamic finance sector.
And although nothing concrete was announced by Darling, Ali said a more reserved position during current market conditions was sensible.
“The fact that the UK sukuk is still up for active deliberation, even in these subprime times, reflects well on the UK, and the City in particular,” added Ali. “The overall positive theme will not be lost on investors, particularly GCC [Gulf Cooperation ;Council] investors, with deep pockets and ethical adherents.
“The measures to support Islamic finance in the UK by providing relief from SDLT for sukuks or Islamic commercial paper and emphasis for regulations is also indicative of the UK’s level playing field – no obstacles, no favours and an enlightened approach to Islamic finance.
“It’s a very good stance for attracting a wider profile of investors and at the same time displaying clear blue water from other financial centres.”
Corporation taxThere was little news in the Budget for companies to be concerned about, with Darling confirming that corporation tax will fall from 38 per cent to 28 per cent by April.
However, as Baker & McKenzie head of corporate tax ;James ;MacLachlan pointed out, this was either a “mistake or spin”, given that the current rate actually stands at 30 per cent.
“This Budget was a virtual non-event on the corporate tax side. It was presented as a Budget of ‘stability and certainty’ for business, so thankfully there was little to rock the boat for companies,” he said.
Stephen Shea, a tax partner at Clifford Chance, believes Darling concentrated on technical tidying-up measures and tightening various screws on tax avoidance because he had little room for manoeuvre on public finances.
“The rate of corporation tax will go down from 30 per cent to 28 per cent and industrial building allowances will be phased out over four years,” said Shea. “There are various changes in rates of capital allowances, while a number of further schemes for generating non-taxable interest are hit on the head, and there’s a tightening up of rules against group-based SDLT avoidance, which may affect some structures already in place.”