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Budget supplement

Further matters of interest in the Budget are:-

Domicile And Residence

(i) A report is to be released before the pre-Budget report 2002, generally published in November, on the complex rules of residence and domicile. It is not yet clear whether this announcement signals that there will be a formal consultation document, a discussion paper or even firm proposals. What does seem clear is that the Government have accepted that the residence and domicile rules are too complex and many need to be reviewed.


There is plenty of scope for action attacking some fundamentally important strategies such as the remittance basis for capital gains tax and income tax and rules such as the non situs and the excluded property trust rules for inheritance tax.

One could not rule out a revised residence and long-term residence rule with a statutory definition of domicile for particular tax purposes. Some feel that greater certainty on these key issues would be more in tune with the understandable certainty required by individuals under the self assessment regime.

Offshore Funds

(ii) A consultation exercise on offshore funds has been promised. It is relatively well known that the offshore funds legislation – not least that dealing with the categorisation of such funds as distributor or non-distributor – is extremely complex.


There can be few members of the investing public who fully appreciate the differences between roll-up and distributor funds. The tax treatment is significantly different and it may be that this is what the consultation is aiming to review. There is, of course, a significant tax difference between the taxation of gains from roll up funds (income tax, no indexation, no CGT annual exemption or taper relief) and capital gains under distributor funds (capital gains tax after taper relief and the annual exemption).

There can also be an administration cost attached to obtaining and maintaining distributor status.

Advisers comparing the appropriateness of the various investment wrappers will need to take account, under current rules, of all the choices including UK and offshore bonds, portfolio management and UK and offshore funds – in the latter case, distributor and non-distributor funds.


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