Widely billed in advance as a green Budget, Alastair Darling’s first March Budget speech was as unexciting as his predecessor’s and contained little of the real detail. It did contain the expected increase in taxes on cigarettes, alcohol and high CO2 emitting cars, but was surprisingly brief, lasting for only 50 minutes! However, as soon as the Chancellor sat down, the Treasury published 107 press releases and various other supplementary documents.

There is a lot of information to digest! We will certainly find ourselves subject to a large number of tax changes from April 6 this year, but most had already been pre-announced – either by Gordon Brown in 2006 and 2007, or in the pre- Budget Report in October. Previous Budgets have outlined the reduction of basic rate tax to 20%, the increase in NI bands, and the changes to the inheritance tax treatment of trusts, whilst the pre-Budget Report heralded the ability to transfer the nil-rate band between spouses, together with sweeping changes to the taxation of capital gains and non-UK domiciliaries. There has been significant lobbying from many sides, and although the Chancellor announced no further changes to the new capital gains tax regime, a supplemental document has revealed a major change of heart on the way in which settlors and beneficiaries of offshore trusts will be taxed from April 6.

Offshore trusts were particularly hard hit by the draft legislation published by HMRC in January but, under the proposed new rules, they will still enjoy major benefits from both a tax and an estate planning perspective.

Changes To The Taxation Of Non-UK Domiciliaries (Non Non-Doms)

Individuals

The much publicised £30,000 annual charge payable by non-doms who have been resident in the UK for 7 out of the last 10 tax years, will come into effect from April 6 2008. This will apply to those aged 18 and above who have offshore income and gains over £2,000 (increased from £1,000). However, this will now be a charge on specific unremitted income and gains and not a stand alone charge. This will be good news for US citizens, who will be able to claim credit against their US tax.

If taxpayers wish to remain taxable on the remittance basis in a particular year, they will have to identify specific foreign income and gains, and effectively pay tax of £30,000 (either income tax or capital gains tax, as appropriate), in respect of them. The income and gains which have been identified in this way can then subsequently be remitted to the UK tax free, but only after all other offshore income and gains arising in the same year have been remitted and tax paid in respect of them.

As anticipated, source ceasing will no longer be effective, and where income has already been source ceased it will be taxable when remitted, if it is not remitted before April 6, 2008. Currently, non-doms are only taxed on foreign investment income where that money is brought into the UK as cash. From March 12, this has been widened to include property acquired and services derived from foreign income (although, in a sensible change, personal effects, such as watches, jewellery, clothes and shoes, have been excluded).

Non-doms have frequently taken out offshore loans to buy UK property and paid the interest out of offshore income without it being remitted to the UK. The draft legislation indicated that this would change, and the interest on new or amended loans will still be caught. However, the interest on existing unaltered loans secured on UK residential property can continue to be financed out of offshore income without a remittance for the period of the loan or until April 5, 2028.

Offshore Trusts

Non dom settlors of offshore trusts can breathe easier tonight; the proposals for all trust gains to be treated as arising to them personally have been reversed. However, non-dom beneficiaries (whether or not the settlor) who receive capital payments in the UK from offshore trusts will be charged to capital gains tax where those capital payments are (effectively) matched to gains realised after April 6, 2008.

It has been confirmed that trustees of offshore trusts can make a rebasing election as at April 6, 2008 in respect of both directly and indirectly held assets, ie including assets held in underlying structures. This is a welcome clarification and effectively means that only gains realised or accruing post April 6 can ever be within the tax charge for non dom beneficiaries.

HMRC have confirmed that there will be no requirement to disclose information about trust assets, provided the taxpayer has declared any taxable income or gains from the trust. However, HMRC may seek information if an election to rebase the trust assets has been made or they enquire into a beneficiary’s tax return.