Rather unusually, we head into a new year with a number of ‘known unknowns’ (to paraphrase Donald Rumsfeld’s words).

They are: significant tax developments that we know about, but where much of the detail is still unknown! In each case, the changes are due to take effect in April 2008.

Firstly, the proposed introduction of a flat 18 per cent capital gains tax rate in place of taper relief will significantly affect many investors, businesses and employee shareholders; some unfavourably, some favourably. Some concessions are almost certain to be announced in January, after which we can expect to see some businesses being sold by those whom the concessions will not help. In future, business sales, succession planning and employee share schemes will have to be rethought and restructured.

Next, proposed ‘income shifting’ rules will prevent the tax-effective payment of family company dividends and partnership profits to individuals who have no "substantial business involvement". These are still under consultation, and there is considerable uncertainty about how they will work in practice.

In another major change for businesses, the capital allowances system will be substantially reformed. The main proposals are that a 100 per cent allowance will be available for purchases of plant and equipment up to an annual £50,000 limit, but annual writing down allowances will be reduced from 25 per cent to 20 per cent (and to 10 per cent if they relate to certain fixtures and fittings). This will benefit many smaller businesses, but will adversely affect large companies.

Finally, the proposed annual £30,000 charge for non-domiciled individuals, and a reduction in the number of days anyone can spend in the UK before becoming resident, will affect many individuals and families. Once again, non-domiciled individuals must await further details before they can plan any changes to the way they remit income or gains to the UK. However, UK visitors who currently rely on days of arrival and departure not being counted for residence purposes should definitely review their travel and work arrangements before 5 April 2008 and may well have to restrict future UK visits.

With regard to newer issues, Chancellor Alistair Darling has already promised that his ‘big idea’ for 2008 will be increases in ‘green’ taxes. Cars with high CO2 emission ratings look certain to bear the brunt of tax increases, in the form of either a purchase tax or a high initial vehicle excise duty charge. Other tax increases or new taxes aimed at reducing wastage or increasing efficiency can also be expected.

*Paula Tallon is head of Tax Support for Professionals at Chiltern

Related tags: purchase tax, 2008, domiciled individuals, smaller businesses, employee share schemes, capital gains tax rate, company dividends, capital gains tax, succession planning, taper relief, capital allowances, travel and work, business sales,