25 November 2008
Jeremy Croysdill, Kleinwort Benson’s Senior Tax Adviser comments on the impact of yesterday’s pre budget report.
Higher earners will see an increased tax burden due to the new upper tax rate and decreased personal allowances, but so too will middle earners owing to the NIC changes. Internationally mobile entrepreneur’s could see the additional NIC and income tax rate increases as "paying more than they get back" with potentially over 52.5% of profits going back to the Chancellor and as such other tax jurisdictions could become attractive.
Trusts, which have enjoyed a period of calm and consolidation since 2006 when they were last attacked, have come under fire once again with the main trust rate of tax rising to 45% and trust dividends now taxed at 37.5%. Although the 45% tax rate of tax for the highest earning individuals was widely mooted before the announcement, the trust rate rises certainly were not. Coupled with the changes in 2006 this now further erodes the benefits of establishing UKtrusts.
We strongly welcomed the announcement that the long-term opportunities and challenges for the UK’s Crown Dependencies and overseas territories operating as offshore financial centres are to be reviewed. Kleinwort Benson has operated in the Channel Islands for over 45 years and we believe that offshore financial centres represent opportunity for economic growth for the UK and it is important to review the ways in which they can further can contribute to the development of the UK economy.
The Chancellor has faced difficult choices in an attempt to get the economy moving and we warmly received the announcement that VAT will drop from 17.5% to 15% until the end of 2009. With high street retailers advertising up to 40% discounts in an effort to boost sales ahead of Christmas, it is questionable whether this reduction will have arrived in time for some British businesses. Furthermore, the reduction in VAT is accompanied by a 2% increase in fuel duty, which is set to increase again in April 2009 and 2010, when VAT will back to usual. This will serve to reduce the realised benefits of the VAT reduction.
Individuals with incomes over £150,000 are facing rising tax bills which will undoubtedly smart as HNW investors have already seen diminished returns as a result of current market volatility.
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