Offshore Review: How will the Budget impact the Channel Islands?

The UK Chancellor’s 2011 Budget speech was set against a backdrop of very tight finances, a spluttering recovery and rising inflation.

He spoke for an hour to bill this as a Budget for growth, which was fiscally neutral and with a promise to help families.

There were a wide range of initiatives announced which are intended to strengthen the UK economy, encourage growth and make it a more competitive place to do business. The Islands should encourage these aims as we benefit from a strong UK economy. But which aspects of the Budget have a specific relevance to us in the Channel Islands?

There was, in advance of the Budget much talk about the possible scrapping of VAT low value consignment relief (LVCR). It was not a good sign this relief, and the Channel Islands, were specifically mentioned in the speech. In the end, a reduction from £18 to £15 from 1 November 2011 should hopefully have only a marginal effect.

However, we need to watch this carefully. The UK Government is discussing the exploitation of this relief with the European Commission and this is likely to be re-visited in 2012. The Islands should be part of that debate and support local businesses. Equally, those businesses have to look to fight on quality and price as well as looking to grow markets away from the UK.

Non dom changes

Significant changes to the non dom regime in the UK would have been bad for business here. The proposed increase in the charge from £30K to £50K for those who have been resident there for 12 years should again not have a significant effect. The fact that the charge is not being introduced on newer residents is to be welcomed, as is the ability to invest foreign money into a UK based business with no tax cost. There is to be consultation. However, there is a promise that there will not be any other substantive changes to the non dom rules for the remainder of this parliament.

A consultation on the introduction of a statutory residence test for individuals will be published in June with intended implementation from April 2012. This will hopefully bring clarity and certainty, which would be welcome.

These changes, and the announcement the 50% tax rate is temporary, may encourage more people to remain in the UK. With a 20% tax rate, no capital gains tax and no inheritance tax, a favourable tax regime is just one of the benefits the Islands have to offer and we should continue to ensure that the “Open for business” sign is visible and supported by actions and not just words.