The Inland Revenue has moved to clarify rules regarding individuals with powers over trusts, stating they will not have to pay inheritance tax unless in exceptional circumstances. The decision follows a recent Court of Appeal case – Melville versus CIR – which threw into doubt the powers of individuals to amend trusts. From this week, individuals will only be subject to IHT if it can be proved they were using their powers to avoid paying tax.
The Treasury has frozen the personal allowances at which people under retirement age qualify for general tax and National Insurance but raised it for pensioners. For the year 2003-4, those under retirement age single persons allowance will be £4,615 before they pay tax, while pensioners under 75 can have an income of £6,610 before qualifying. Those over 75 can set the first £6,740 of their income against tax.
Customs & Excise will take steps to rreduce the red tape burden on 700,000 small firm such as IFAs. The measures include automatic relief for VAT on bad debts and the abolition of automatic fines for late VAT payment. With immediate effect the Chancellor is introducing a flat rate calculation for VAT payments for businesses with turnover of up to £100,000.
The investment industry has welcomed the Treasury's decision to allow Venture Capital Trusts to merge without hitting the tax relief of both sets of shareholders. Fund managers and IFAs say the move will lead to larger VCTs offering a wider spread of investments and a much improved secondary market. But they are disappointed the Chancellor has ignored pleas to change taper relief rules to allow deferral of the chargeable gains to be made after taper relief rather than before.
The Chancellor announced that the "complex rules of residence and domicile" are going to be reviewed. A spokesman confirmed that the Government is going to consult before the Pre-Budget Report on ways of making the rules fair, easy to operate and which would support the competitiveness of the UK economy.
The Treasury has announced it is consulting on ways to simplify the operation of offshore investment funds. The Government believes there are complications with the administration of offshore funds, which it says can be avoided through cutting out unnecessary red tape.