IMPORTANT US TAX HIGHLIGHTS

Please find detailed below a brief summary of some of the changes that may affect your US taxes in respect of the 2008 and 2009 calendar years.

IRS approved average exchange rate for 2008 - $1.8552 To £1.
Note: In particular, tax rates are subject to change sometimes retroactively, especially in this current economic climate.

22 January 2009
Economic stimulus payments - Payable to those who filed their 2007 US returns by October 15th, 2008, these payments are neither taxable nor reportable on the 2008 US returns. However they may affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit may be claimed. This is figured using the amounts based on the 2008 US return, accounts for any qualifying economic stimulus payment that has not been received and accounts for any children born during the year.

Qualifying dividends are taxed at 0 percent and 15% for years 2008 through 2010.

Real property tax deduction - The Housing Assistance Tax Act created an additional standard deduction for 2008 for real property taxes equal to the lesser of the amount paid or $500 ($1,000 for married filing joint).

Qualified mortgage insurance premiums - Under s.163(h)(3)(E) of the Internal Revenue code, premiums paid for qualified mortgage insurance on a mortgage secured by the principal residence are deductible as qualified mortgage interest. This applies to amount paid after December 31, 2007, but does not apply to mortgage insurance contracts issued before January 1, 2007.

s.179 expensing - Up to $250,000 of qualifying property purchased for use in a trade or business may be expensed instead of being subject to depreciation over several years.

First time homebuyer credit - For principal residences purchased after April 8, 2008 and before July 1, 2009, a first time buyer can claim a credit equal to the lesser of 10% of the purchase price, or $7,500 ($3,750 if filing married separate). This is subject to phase out and relates to property purchased in the United States only. The credit may be claimed on 2008 US returns and recaptured over a 15 year period starting in the second year following the year of purchase. Applies to first time buyers and to those individuals who have not had an ownership interest in a principal residence during the three year period ending on the date the principal residence is purchased.

Kiddie Tax - Applies children under the age of 19 and full time students under the age of 24. The kiddie tax will not apply if the child's earned income is more than 50% of the child's support for the entire year; but it can still apply if the child's unearned income exceeds 50% of the child's support.

Expatriation - The 2008 Heroes Act included a new "mark to market" regime for the taxing gains of US citizens and long term residents who expatriate on or after June 17th, 2008. All property of a "covered" individual will be treated as sold on the day before expatriation, at fair market value. Gains in excess of $600k (adjusted for inflation) are included in income and are taxed.

A gift tax is imposed on US citizens or residents who receive on or after the date of enactment qualifying gifts or bequests from an expatriated individual. There is also a 30% withholding tax on qualifying deferred compensation paid to a covered expatriate.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the United States Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.