Brown targets tax breaks

Offshore tax breaks for corporations and individuals will come under attack in Gordon Brown's Budget on Wednesday in an effort to increase revenues collected from capital gains tax, which have fallen to low levels in recent years.

According to Whitehall sources, the Chancellor's plan is to close the main loopholes that currently allow companies and individuals to make unlimited capital gains offshore without being liable for tax in the UK.

However, the big target is thought to be multinational corporations, which successfully avoid paying capital gains tax on their assets by channelling them through "moneybox" companies registered in tax havens.

Under the current Controlled Foreign Companies legislation, companies with assets overseas but controlled from the UK must pay tax on the income generated by such assets. However, any capital gains realised in those foreign subsidiaries are free from UK tax.

Thus a "moneybox" company - an offshore vehicle designed to hold cash on behalf of a parent company - can avoid paying any tax on gains made to that cash pile by investing in an asset, such as an office building, and then selling it for a capital gain later.

If the offshore company just kept the money in the bank, it would be liable to income tax in Britain on the interest generated by that account.

The Chancellor is thought to be preparing a measure that will close the capital gains loophole, in the hope of improving government receipts from capital gains tax.

Last year, the tax raised pounds 900m - which is enough to fund the National Health Service for 10 days.

The Chancellor is also expected to target offshore tax avoidance by individuals who spend a year or more working abroad.

Currently such people can realise capital gains while working outside the UK, and repatriate them on their return without being liable to UK tax.