Individual Savings Accounts (ISAs)
With effect from 6 April 2008, the following increased subscription limits will apply:

• £3,600 per tax year into a cash ISA; and
• £7,200 per tax year into a stocks and shares ISA,

subject to an overall annual subscription limit of £7,200 to both ISAs.

Taxation of Personal Dividends from Non-UK Resident Companies
Individuals currently pay tax on dividends from non-UK resident companies without the benefit of the (non-repayable) one-ninth tax credit they would have received if the dividend had been paid by a UK resident company. For 2008/09 onwards, they will receive the benefit of the tax credit provided they own less than a 10% shareholding in the non-UK resident company and receive, in total, less than £5,000 in dividends from non-UK resident companies in the year. For a higher rate taxpayer, this reduces the rate of tax on such a dividend from 32.5% to 25%. For other taxpayers, the tax credit extinguishes their liability on the dividend.

Venture Capital Schemes
Inevitably there are some changes announced to the rules affecting the Enterprise Investment Scheme (EIS), the Venture Capital Trust (VCT) Scheme and the Corporate Venturing Scheme (CVS). Companies or groups with more than 50 full-time employees (or equivalents) will not be able to raise money under any of these schemes. Furthermore, no company or group will be able to raise money under any of the schemes if it has already raised more than £2 million under any or all of the schemes in the previous 12 months. If a particular issue of shares causes the limit to be breached, none of the shares in that issue will qualify for EIS or CVS relief or rank as a qualifying holding of a VCT. These two changes affect EIS and CVS shares issued after the date of Royal Assent to the Finance Bill and to investments made out of funds raised by VCTs on or after 6 April 2007.

An approved EIS fund will be allowed 12 months (extended from 6 months) after the fund closing date in which to invest at least 90% of the funds it has raised. The extension to 12 months applies where the closing date of the fund is after 6 October 2006.

A number of more minor changes, effective from 6 April 2007, will also be made.

Pension Schemes
The following changes are made to the pension provision regime.

Non-cash benefits may be provided by an employer to retired employees. Before 6 April 2006, these were taxable only if provided together with taxable cash benefits, e.g. a pension. Since that date, they have been taxable whether provided with cash benefits or not, subject to a £100 de minimis limit. However, the Government is now to introduce (backdated to 6 April 2006) a number of exemptions similar to those that may be enjoyed by current employees, for example for recreational benefits, annual parties and welfare counselling. Benefits related to the writing of wills and benefits first provided before 6 April 1998 will also be exempted.

The rules on unauthorised payments by registered pension schemes are to be amended to prevent reductions in tax charges through manipulation of the way payments are made.

The inheritance tax (IHT) pension rules will be amended to allow IHT exemption provided a lump sum death benefit is paid by a registered pension scheme within the time permitted by the scheme rules. This change will be backdated so as to apply to all lump sum death benefits paid since the commencement of the registered pension scheme regime on 6 April 2006.

Personal Term Assurance
Individuals will no longer receive tax relief on pension contributions used to pay premiums under new personal term assurance policies. The change affects occupational scheme policies applied for from 29 March 2007 or taken out from 1 August 2007 and other pension scheme policies applied for from 14 December 2006 or taken out from 1 August 2007.

Pre-existing arrangements will cease to receive relief if the policy is varied by increasing the term or sum assured, unless under an option within the policy.

Alternatively Secured Pensions
Legislation will be introduced in the Finance Bill which will affect the operation of members’ and dependants’ alternatively secured pension (ASP) funds. There will be a requirement to draw a minimum income from the ASP fund of 55% of the annual amount of a comparable annuity and the application of a tax charge where ASP funds remain on the death of the member and are transferred to the funds of other members in the scheme.

Schemes will also need to take reasonable steps to trace a member but if untraced at their 75th birthday the funds will become held in suspense and will not be part of the ASP funds.

For deaths on or after 6 April 2007 any IHT charged will be calculated after the nil-rate band has been firstly set against the estate of the deceased excluding ASP funds. In cases where there is an amount of nil-rate band available to set off against the ASP funds special IHT taxing rules will apply to cater for these special circumstances.

Offshore Funds Regime
Changes will be made in relation to offshore collective investment funds (‘offshore funds’).

Firstly, in determining the status of a fund (A) as a distributing fund, the wording of ICTA 1988, Sch 27, para 6 may be applied to every fund in which A invests, thus removing the restriction to two layers in any multi-tiered fund of fund structure. The change will have effect in relation to account periods beginning on or after 1 January 2007.

Secondly, in deciding whether an open-ended investment company is within the offshore funds regime, one test to be applied is whether an investor is able to realise his investment within a reasonable period. For account periods beginning on or after 1 January 2007, a ‘reasonable period’ is to be regarded as seven years.

Thirdly, a measure will be introduced to make it clear that a loss arising from the computation of a gain under ICTA 1988, Sch 28, para 3(5) can only be a capital loss, i.e. it cannot be set against profits under ICTA 1988, s 836B (income tax) or Schedule D Case VI (corporation tax). This measure will have effect for losses arising on or after 6 April 2007 for income tax payers, and on or after 1 April 2007 for corporation tax payers.

Fourthly, a measure (to be introduced with effect from the date of Royal Assent to the Finance Bill) will exclude offshore income gains from the test, under ICTA 1988, s 842(1)(a), of whether a company’s income is derived wholly or mainly from shares or securities (and hence whether that company is approved as an investment trust). Offshore gains income will, however, remain taxable as income in the hands of approved investment trusts.

Life Insurance Policies and Commission Arrangements
Provisions in the Finance Bill will make it clear that, in relation to any policy or contract on which a person is potentially liable for chargeable event gains, if:

• the premiums paid under a policy, etc. exceed £100,000 in any given tax year; and
• the policy, etc. is surrendered, matures or is assigned for money or money’s worth before the end of the third tax year after that in which the premium threshold is crossed, then the amount of premiums allowable in calculating any gain on these chargeable events:
• is reduced by the amount of any commission which is passed on to a policyholder or connected person by an intermediary such as a financial adviser; and
• does not include any amount of commission waived by an intermediary that is reinvested in the policy.

The measure will apply to policies, etc. made after 20 March 2007. It will also apply to existing policies where the benefits secured are increased after that date, either by a variation or by the exercise of an option.

Purchased Life Annuities
The Government is to consult during 2007 on rewriting the regulations on purchased life annuities (PLAs). The requirement for HMRC to determine the tax-exempt element of a PLA, calculated by the insurer, will therefore be removed when the new regulations take effect.

Recognition of Stock Exchanges and Definition of ‘Listed’ for Tax Purposes
Legislation will be introduced from the date of Royal Assent to the Finance Bill to allow HMRC to designate any recognised investment exchange (RIE) by the Financial Services Authority (FSA) as a recognised stock exchange for taxation purposes. This will ensure that there is equal taxation treatment for FSA listed shares regardless of which RIE is used as the primary market for the shares.

Also the term ‘listed’ will be defined and there will be updating of the terms used in conjunction with ‘listed’ and ‘stock exchange’. HMRC will be allowed to designate any UK investment exchange as a recognised stock exchange. The listing of shares on a recognised stock exchange is required in order to benefit from a number of tax reliefs, e.g. ISAs, as well as a number of tax reliefs being available where shares are not listed on a recognised stock exchange, e.g. CGT business asset taper relief. ‘Listed’ will also include shares covered by the EU listing regime and elsewhere the local equivalent of an official list on the local equivalent of a regulated market.

Alternative Finance Arrangements
Certain types of investment bonds, known as ‘sukuk’, satisfy the Shari’a law prohibition on paying or receiving interest and new rules will be introduced to tax these investment bonds on a par with equivalent conventional securities. The changes will apply to arrangements entered into on or after 6 April 2007 for income tax purposes and 1 April 2007 for corporation tax purposes. There will also be a change to previous legislation to ensure that in alternative finance arrangements involving a profit share agency the agent is treated for all tax purposes as entitled to the profits that are taxable.