Welcome to the first edition of Tax Matters, a newsletter designed to bring you up to date with new developments and ideas in the world of tax planning.

We would also like to take the opportunity to introduce Jon Croxford, who heads up the Private Client Tax Team in our Birmingham office. Jon joins us from KPMG where he specialised in tax planning for the high net worth individual, with particular emphasis on entrepreneurial issues. Jon was also KPMG’s national head of Inheritance Tax solutions and brings with him a wealth of experience.

Inheritance tax to be increased to 50%?

The Institute for Public Policy Research, a high level think-tank with Government links, has recently proposed increasing the rate of inheritance tax from 40% to 50% for estates in excess of £763,000. Whilst a lower rate of inheritance tax is also proposed for more modest estates, the higher rate of 50% would catch many of our clients and would definitely be unwelcome. This is not yet official Government policy but it may be that the long-awaited increase in death duties is just around the corner. Our advice would be to consider your planning options now, whilst there is still time to take pre-emptive action.

Finance Act 2004 in overview

Recent years have seen a number of attacks by the Government on tax planning for the private individual and 2004 has been no exception. In Finance Act 2004, new legislation has been introduced to block a variety of tax planning mechanisms and the taxation of trusts is undergoing radical reform. Some of this new legislation and what it means for the taxpayer is discussed later in this newsletter.

The new "disclosure" rules

Among a number of attacks on tax planning, the Government took the dramatic step of introducing rules which require promoters of tax schemes to disclose to the Inland Revenue full details of new tax planning arrangements. This means that the Inland Revenue will be given early warning of many new tax schemes and should then be able to introduce blocking legislation at relatively short notice.

Although widely drawn, the new disclosure rules are aimed at schemes designed either:

a) to avoid tax in respect of employee remuneration, or

b) to create artificial tax losses using certain financial products.

Unfortunately, it appears to have been the persistent mass marketing of such tax schemes (or "products") by various national firms and niche advisors which has resulted in the introduction of this new legislation.

The new disclosure rules took full effect in August and their real impact remains to be seen. However, importantly, they do not impact upon inheritance tax planning and are also unlikely to impact significantly upon other types of tax planning tailored to an individual’s specific needs. As our approach has always been to offer individual solutions, rather than "products", we are hopeful that these rules will have limited impact upon what we can offer to our clients and contacts.

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