UK: Budget – 2008

Last Updated: 18 March 2008
Article by David Blumenthal and Belinda Bridgen

Alastair Darling's first Budget contains few surprises and largely reprises measures we already knew about. A summary of some of the key measures announced on 12 March 2008 is set out below.

The corporation tax and capital gains tax rate changes are going ahead as is the £30,000 tax on non-doms. However, both the introduction of measures to prevent the shifting of income between spouses and "principles-based" legislation to counter avoidance on financial products is to be delayed for a year. A positive is the announcement of a review looking at how to simplify corporation tax returns and calculations for small companies.

Key items of interest to the property sector were: the introduction of tax transparent property authorised investment funds which offer an open ended alternative to REITS; details of the changes to capital allowances previously announced; closure of certain Stamp Duty Land Tax (SDLT) planning schemes using group relief or "Sharia lending"; relaxation of the SDLT provisions affecting property funds structured as partnership; and changes to the option to tax VAT regime.


In his 2007 Budget, Gordon Brown had announced a reduction in the main rate of corporation tax from 30% to 28%, but also a staged increase in the small companies' rate from 19% to 22%. Despite calls from the Shadow Chancellor, George Osborne, to cut the main rate of corporation tax even further and scrap the increases in the small companies' rate, the Chancellor confirmed that the original changes will be going ahead.

Capital Allowances

To fund these reductions, Gordon Brown had announced inroads into the capital allowances system. The new Chancellor has confirmed that industrial buildings allowances are to be phased out and plant and machinery allowances reduced from 25% to 20%, with items integral to a building only qualifying for a 10% rate. Items that are to be treated as integral to the building are electrical systems including lighting, cold water systems, heating and air conditioning systems (including hot water heating systems), lifts, escalators, moving walkways, external solar shading and active facades.

Partly to compensate for this chipping away at capital allowances, an annual investment allowance will apply to the first £50,000 of expenditure on plant and machinery from 01 April 2008, on which 100% allowances will be given. This will apply even to items which would only qualify for the 10% rate.

In line with the Government's green agenda, certain energy and water saving equipment can qualify for 100% allowances. Where such allowances create a loss in a company, it will be possible to claim a cash sum for the loss at a rate of 19%, subject to a maximum of £250,000 or the amount of the company's PAYE/NIC contributions, whichever is greater.

Capital Gains Tax (CGT)

The Chancellor confirmed that the major changes to CGT announced in his October 2007 Pre-Budget Report will go ahead. From 06 April 2008, there will be a flat rate of 18% and taper relief (which could reduce the effective rate of tax to 10%) will be abolished. However, the new entrepreneurs' relief preserves the 10% rate (up to a lifetime limit of £1 million) for individuals selling their businesses or selling shares in trading companies that they work for and in which they hold at least 5% of the shares.


Also going ahead is the £30,000 charge for non-doms who have been in the UK for more than seven years and want to continue to be taxed on foreign income and gains only when remitted to the UK. But, there are now exemptions for children and those with less than £2,000 of foreign income. What the government considered to be loopholes in the remittance basis allowing income and gains to be remitted without tax being paid will also be closed down and personal allowances will no longer be available to individuals taxed on this basis.


In the Pre-Budget Report, the Chancellor had announced that days of arrival and departure would be counted as days in the UK when determining whether an individual was resident in the UK for tax purposes. However, there has been something of a climbdown with only a day in which an individual is here at midnight counting. So, if an individual flies into the UK on Monday and arrives before midnight, Monday will count as a day in the UK while if an individual leaves the UK just before midnight on Monday, Monday will not count as a day in the UK.

Tax Incentives

The enterprise investment scheme offers tax incentives for investment in small, higher risk, trading companies and is to be made somewhat more attractive by raising the limit on an investment eligible for offset against an individual's income tax bill to £500,000. On a similar note, the limit on options that may be granted under the enterprise management incentive scheme will be raised to £120,000 – not that this will compensate for the increase in CGT. In both cases, companies involved in ship building coal and steel production will no longer qualify.

Property Authorised Investment Fund (PAIFs)

From 06 April an open ended investment company that meets certain criteria may elect to be treated as a PAIF, the income of which will be taxed at the investor level rather than within the fund (capital gains are already exempt). Conditions for PAIF treatment include genuine diversity of ownership – the shares must be publicly available; at least 60% of the business must be direct or indirect property investment (e.g. through a REIT); and there are restrictions on the holdings of corporate investors as well as on the type and amount of loan financing available. PAIFs will offer an open ended alternative to REITS and the criteria and restrictions which apply are similar to those applying to REITS. As with REITS they will not be suitable for smaller closely held funds.


The rules that enable non-residents to appoint UK investment managers without exposing the non-resident to UK tax will be simplified.

A gain on selling an interest in an offshore fund is taxed as income and not capital, unless the fund has distributed its income so that it can be certified as a "distributing fund". In future, a fund will be able to be certified as a distributing fund if it reports its income without actually distributing it and the UK investors then pay tax on the reported income. If UK funds invest in offshore funds, they will now be able to pass the income charge on disposals onto their investors.

For UK individuals investing in foreign shares, their tax treatment has up to now been taxed less favourably than an investment in UK shares. A tax credit against the income tax liability in respect of the dividends was available on UK shares but not foreign shares. This credit will now be available on foreign shares, subject to the condition for investors who own more than 10% of the shares in the foreign company that the foreign company pays tax equivalent to UK corporation tax on its profits.


Two more SDLT loopholes have been closed. First, a further condition has been added to the relief for alternative finance (Sharia lending). There must be no arrangements for a change in control of the bank's subsidiary which acquires the property. This is to prevent the perceived abuse of the relief in normal commercial property transactions. Secondly, a further circumstance in which group relief will be clawed back is where, within three years, both the vendor leaves the group and there is a change of control of the original group. If only the vendor leaves the group, group relief will continue to be available.

As previously announced there will be a retrospective change to the partnership rules negating the effect of some of last years changes for property investment partnerships. This will remove the charge which would have arisen on a change in partnership shares even when no consideration passed and there was no connection between the partners. This change is to benefit property funds structured as partnerships who were unintentionally hit by last year's changes.

On the plus side, alternative finance investment bonds ("sukuk") will be tradeable free of stamp duty.


The turnover threshold for registration is increased from £64,000 to £67,000 from 01 April 2008. A number of changes to the option to tax provisions will be introduced effective from 01 June. The most significant will be the ability to revoke an option to tax after twenty years. The earliest date this will be possible is 01 August 2008, being the twentieth anniversary of the introduction of the option to tax. A number of further minor changes to "improve practical administration" will be made.


The customary list of anti-avoidance announcements includes measures against leasing schemes; schemes diverting income to a foreign partnership comprising offshore trustees which seek to rely on a double tax treaty to prevent the UK taxing the income; schemes converting taxable interest into a non-taxable returns; and schemes to circumvent the UK anti-tax haven rules.

This article is only intended as a general statement and no action should be taken in reliance on it without specific legal advice.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.