| Inheritance tax nil rate band
The inheritance tax nil rate band will increase to £275,000
from 6 April 2005. The nil rate bands have been set for the following
two years, at £285,000 for 2006/07 and £300,000 for
2007/08.
Capital gains tax annual exemption
The annual capital gains tax exemption for individuals will rise
to £8,500 from 6 April 2005. The maximum annual exemption
for most trusts will be £4,250.
Chargeable gains – temporary non-residents
Individuals who leave the UK temporarily will no longer be able to
use the terms of any double taxation agreement to escape tax on capital
gains arising while they are abroad. The change will affect individuals
who leave the UK after 5 April 2005 and some who leave between 16
March and 5 April 2005.
Under current law, the chargeable gains of individuals are normally
subject to tax if they are not resident and not ordinarily resident
in the UK for fewer than five tax years. This is charged in the
tax year of their return to the UK. It has been argued that the
terms of the tax treaties of certain countries prevented the Inland
Revenue from taxing the gains of individuals resident in those countries.
The Inland Revenue disputes this view, but the new measure is intended
to put the matter beyond doubt. It also covers the position where
individuals are simultaneously resident in two countries.
Chargeable gains – trustees’ change of residence
An anti-avoidance measure will prevent trustees of settlements from
exploiting the terms of certain double taxation agreements to avoid
UK tax on chargeable gains. With effect from 16 March 2005, it will
prevent the terms of any tax treaty overriding UK capital gains
tax law, where the disposal is made in a tax year in which the trustees
are at some time resident or ordinarily resident in the UK.
Chargeable gains – location of assets
From 16 March 2005, changes are made to the rules for determining
where certain assets are located for the purposes of tax on chargeable
gains. In particular, bearer shares in companies incorporated in
the UK will be treated as situated in the UK, regardless of where
the shares are actually located. An intangible asset, such as a
contract or a right to sue, will be treated as situated in the UK
if it is subject to UK law, unless its location is covered by existing
legislation.
The change will bring such assets within the scope of capital gains
tax for individuals who are resident but not domiciled in the UK,
and who are therefore not generally taxable on gains on assets located
outside the UK. It will also affect non-residents trading in the
UK through a branch, agency or permanent establishment.
Stamp duty land tax – residential
The threshold for stamp duty land tax on residential transactions
is raised from £60,000 to £120,000 with effect from
17 March 2005. Tax will be payable at 1% on the whole of the consideration
if it is more than £120,000 but not more than £250,000.
There is no change to the higher threshold of £150,000 for
residential transactions in designated disadvantaged areas. The
other rates and bands are unchanged.
Stamp duty land tax – commercial
Disadvantaged areas relief ends for non-residential land transactions
from 17 March 2005, unless the contract was entered into before
that date. For relief to be preserved, there must be no variation
or assignment of the contract or sub-sale, and the transaction must
not be the exercise of an option or pre-emption right.
Stamp duty land tax disclosure rules
Rules have been introduced requiring the disclosure to the Inland
Revenue of information about schemes and arrangements intended to
avoid stamp duty land tax on commercial property transactions in
the UK with a market value of at least £5 million. They are
similar to the existing disclosure rules for tax avoidance schemes
involving employment or certain financial products and will take
effect from 1 July 2005.
Stamp duty land tax avoidance
New provisions block several stamp duty land tax avoidance schemes.
There will now be a charge where land is transferred into a partnership
and the transferor takes money out of the partnership within three
years. Other changes affect the claw-back of group relief, acquisition
relief, the grant of new leases where one party is a bare trustee,
certain variations of leases to remove restrictive covenants, the
withdrawal of sub-sale relief where the second transaction is also
relieved from tax, the contingent consideration rules and sale and
leaseback transactions.
All the changes take effect from 17 March 2005, except for transactions
in pursuance of contracts entered into before that date, which are
unaffected, subject to certain conditions.
Stamp duty land tax returns
The Inland Revenue valuation agencies will obtain access to information
on stamp duty land tax returns with effect from Royal Assent.
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