UK Budget offers Silver Lining for OFC's

It has been said many times before that the effects of the credit crunch will be difficult to anticipate and manage.  This is equally true of the policy responses to both the predicted and unforeseen outcomes.  However, it was universally believed that the overriding effects would be negative for offshore financial centres.  Accordingly, it was with some surprise that the budget delivered by the UK government's chancellor, Alastair Darling, actually contained some positive news which may act as a boost for some financial centres.  Firstly, the draft code of practice drawn up by the UK government and which senior bankers who have seen a draft have commented that it emphasises that tax should be paid with the "spirit as well as the letter of the law", did not materialise, as expected in the budget.  However, it is not clear at what stage and in what form this might eventually appear.

Secondly, in one of the most high profile announcements, as from April 2010 those earning over £150,000 will be subject to a tax rate of 50% placing Britain in the category of the world's richest countries with the highest top rate of income tax.  Combined with the withdrawal of income tax personal allowances the Treasury is seeking to raise an extra £3.2bn to fund part of its increased borrowing requirements.  There are many debates as to whether this will actually be achieved with a great number of commentators pointing out that tax payers will find ways to mitigate their exposure.  One of the indirect beneficiaries could well be not only providers of trusts and companies, but also the governments of jurisdictions which often compete to attract higher net worth individuals to whom attractive deals can be offered in terms of the requirement to pay tax locally.  The introduction of the 50% rate has just made this option more attractive to a wider audience on a cost benefit basis and may encourage British residents to seek the shelter of more fiscally attractive regimes.

It could well be that the business development activities of trust and company providers and the immigration departments of offshore financial centres are preparing for a renewed marketing campaign thanks to the UK government.

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