30 October 2018
Autumn 2018 Budget Briefing
On 29 October, Philip Hammond presented his third Budget and what should be the last one before Brexit in March next year. The Chancellor offered a budget that was more generous than expected and more money will be spent on the NHS and other public services. The Budget also contained a number of announcements which will affect private individuals and businesses, and we have set out a summary of the key measures below.
Personal Taxation
Income and capital gains tax rates and allowances
The Chancellor announced that the income tax personal allowance will rise to £12,500 and the higher rate threshold will also be increased to £50,000 from April 2019. This is one year earlier than planned. These thresholds will remain at the same level in 2020/21 and thereafter will rise in line with the CPI.
The lifetime allowance for pension savings will increase in line with CPI for 2019/20, rising to £1,055,000.
The starting rate limit for savings will however remain at the current level of £5,000 for 2019/20 - this is the band of savings income that is subject to 0% tax. The annual ISA subscription limit for 2019/20 remain unchanged at £20,000.
The capital gains tax annual exempt amount will rise from £11,700 to £12,000 for individuals and personal representatives, and from £5,850 to £6,000 for most trustees.
Income and capital gains tax rates are unchanged.
Inheritance tax
The government has announced that it will introduce two technical changes to the residence nil rate band (RNRB). These measures are designed to ensure that the RNRB applies as originally intended. The changes will amend the calculation of the downsizing addition in certain circumstances and to ensure that RNRB does not apply where a residence is gifted, subject to a reservation of benefit, to certain lifetime trusts for lineal descendants rather than absolutely.
These measures will be implemented by the Finance Bill 2019, but will apply to claims made in relation to deaths occurring on or after 29 October 2018.
Taxation of trusts
The government announced in the 2017 Budget that it will a consultation on how to make the taxation of trusts simpler, fairer and more transparent. The Chancellor reconfirmed this yesterday but did not provide any further information or timescale.
Business and Employment
Capital allowances
The Annual Investment Allowance (AIA) will be increased from £200,000 to £1 million for all qualifying investments in plant and machinery for a temporary two year period effectively from 1 January 2019. This is done in an effort to stimulate business investment.
Yesterday’s Budget also included an announcement on a reduction in the writing down allowance (WDA) rate for the special rate pool from 8% to 6%, effectively from April 2019. The WDA rate for the main pool (currently 18%) and the special rate pool for ring fence trades (currently 10%) remain unchanged.
Whilst legislation will be brought in to extend enhanced capital allowances for businesses investing in electric vehicle charge points until March 2023, the government will, on the other hand, end the enhanced capital allowances and the first year allowances for qualifying plant and machinery that are energy efficient or environmentally beneficial from April 2020.
New capital allowances for structures and buildings
The government is introducing with immediate effect a new structures and buildings capital allowances (SBAs) for expenditure incurred on the construction of new commercial buildings and structures and on new conversions and renovations. This allowance has some similarities to industrial buildings allowances, which was removed in 2011.
The SBAs give an annual flat rate of 2% deduction of eligible expenditure over 50 years. Capital expenditure is eligible for SBAs on structures and buildings brought into use for specified qualifying activities, including trades, professions and property businesses. Structures and buildings are to be widely defined to include offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. Expenditure on dwellings does not qualify and this includes expenditure on buildings used for long-term residence, such as student accommodation.
Entrepreneurs’ relief
The government thought that longer-term holding is a feature of genuine entrepreneurial activity. On this basis, it will introduce legislation to extend the minimum period throughout which the qualifying conditions must be met for entrepreneurs’ relief purposes from 12 months to 24 months for disposals made on or after 6 April 2019.
The qualifying period for entrepreneurs’ relief for people who acquire shares through an enterprise management incentives (EMI) option is also increased. This means that entrepreneurs’ relief will be available only to option holders who sell their shares two years or more after the option was granted.
Two new conditions will also be added to the definition of “personal company” for the purposes of entrepreneurs’ relief to ensure only those who fall within the spirit of the relief are able to claim it. For disposals on or after 29 October 2018, the individual must be beneficially entitled to at least:
5% of the company’s distributable profits;
5% of its assets available for distribution to equity holders on a winding up.
The same two requirements are also added to the conditions for relief on associated disposals as well as to the conditions for the withholding of relief on goodwill.
Digital services tax
In response to the ongoing discussions at the OECD and EU about different way in which value is created in the digital economy, the UK government has announced that a digital services tax (DST) will be levied at 2% on revenues exceeding £25 million that are derived by social media platforms, online marketplaces and search engines from providing certain services that are linked to UK users.
Revenues that will be subject to DST include advertising revenues generated by social media platforms or search engines from targeting adverts at UK users or displaying advertising against search terms inputted by UK users.
DST will only apply to businesses whose global revenues from such services are at least £500 million (similar to the EU’s proposed DST), and is therefore likely to be relevant to the tech giants.
Off-payroll working
The Chancellor confirmed that the public sector off-payroll working rules will be extended to the private sector from 6 April 2020. The rules will only apply to large and medium sized businesses with the existing IR35 rules continuing to apply to small businesses. The government intends to use the same definition of small businesses as the one found in the Companies Act 2006 - i.e. a small company is one that has a turnover of not more than £6.5 million, a balance sheet total of not more than £3.26 million and not more than 50 employees.
Property Taxation
Principal private residence relief
The government has indicated that they will restrict some aspects of the principal private residence relief (PPR) from capital gains tax on the disposal of an individual’s only or main residence. First of all, the automatic exemption for the final period of ownership will be reduced from 18 months to nine months. There will be no change to the 36 months final exemption period available to disable people or those in a care home. Secondly, letting relief will only apply where the owner is in shared occupation with a tenant.
These changes will take effect from April 2020 after consultation.
Stamp duty land tax
Measures were introduced in Autumn 2017 Budget to provide relief from stamp duty land tax (SDLT) for first-time buyers of dwellings costing up to £500,000. Where the relief is available, the rates of SDLT applicable are modified to 0% on up to £300,000 and 5% on the remainder (up to £500,000).
This first-time buyers relief will now be extended to all first-time buyers of shared ownership properties in England and Northern Ireland. This extension will also apply retrospectively to transactions with effective dates on or after 22 November 2017, but eligible buyers must claim an SDLT refund before 28 October 2019.
International Individuals
The government confirmed that the Financial Bill 2019 will extend the scope of UK tax to gains realised by non-residents on the disposal of all UK real property. Currently, non-residents are only liable to a capital gains tax charge when they dispose UK residential property.
There will also be a new SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland. Consultation will be published in January 2019.
The above information is intended merely to highlight issues and not to be comprehensive, nor to provide advice. Should you have any questions on issues reported here or on other areas, please contact one of your regular contacts, or alternatively please contact enquiries@mytaxadviser.co.uk.
