Summary of Budget 2018: Key points at-a-glance
The tax-free Personal Allowance will rise from £11,850 to £12,500 (the amount you earn before you have to start paying income tax) in April 2019, an increase of £650.
The higher rate threshold (the level at which 40% income tax is paid) will increase from £46,350 to £50,000 in April 2019.
This means that in 2019-20, there will be nearly one million fewer higher rate taxpayers than in 2015-16. These increases come a year earlier than planned, as detailed in the Conservative Party’s manifesto.
Capital Gains Tax
Property disposals – Changes announced to two reliefs available to mitigate the capital gains tax charge arising on the disposal of a former home, which has been rented before being sold.
- From April 2020, lettings relief will be reformed so that it is only available to those who are in shared occupancy with a tenant. Lettings relief currently provides up to £40,000 of relief (£80,000 for a couple) to those who let out a property that is, or has been in the past, their main residence. The relief is available even if the owners have not lived the property for a long time. The proposed change is that the relief will only be available to those who are in shared occupancy with a tenant. (This change will not affect owner-occupiers or landlords who have never lived in the property they are renting out, as it has never been applicable).
- Final period exemption currently means people do not have to pay capital gains tax on gains made in the final 18 months of ownership, even if they are not an owner-occupier during that period. A long exemption period means that more relief can accrue on two properties (an unsold one and a new one) simultaneously. The government stated that ‘this is out of line with the intention of the exemption, which is meant to protect those who move to a new main residence but are unable to sell their original home immediately’. From April 2020, the exemption will be reduced to nine months. The special rules that give 36 months of exemption to those in or moving into care homes and people with a disability will not change. In addition, the rules relating to individuals moving due to employment should remain the same.
Entrepreneurs’ Relief – Despite lobbying in certain quarters for the abolition of Entrepreneurs’ Relief, the Chancellor committed to retaining the relief. However, the rules have been tightened as follows:
- To support longer-term business investments, from 6th April 2019 the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months.
Entrepreneurs’ Relief gives a capital gains tax charge of 10% on qualifying disposals rather than the usual 20%.
- With immediate effect from the day of the Budget, the qualifying conditions for Entrepreneurs’ Relief in respect of shares have been extended. In addition, to the current condition of being an employee or office holder and having 5% of the voting rights, the shareholder must also have a 5% stake in their company’s distributable profits and assets available for distribution on a winding up.
Capital gains tax annual exemption amount to increase to £12,000 (from £11,700) for individuals and £6,000 for trustees from 6th April 2019.
The Budget confirmed that from April 2019, non-UK residents (including companies), will be subject to tax on the disposal of UK sited, non-residential property, in line with the measures introduced in April 2015 for residential property. More detail can be found in our September newsletter.
Other than some technical amendments to the residence nil rate band (reduces the burden of inheritance tax when passing the family home to direct descendants) in respect of downsizing and the definition of “inherited”, there were no significant changes to the inheritance tax regime.
Benefits in Kind – From 6th April 2019:
- The van benefit charge will increase to £3,430 (from £3,350).
- The van fuel benefit charge will increase to £655 (from £633).
- The multiplier for the car fuel benefit charge will increase to £24,100 (from £23,400).
Employment Allowance restricted to businesses with NIC bills below £100,000 from April 2020.
National Living Wage from April 2019 will increase from £7.83 an hour to £8.21.
The apprenticeship training levy for some employers will pay half of what they currently pay for apprenticeship training, 5%. The government will pay the remaining 95%.
As expected the IR35 off-payroll working rules which have already been introduced for the public sector are to be extended to the private sector, the Chancellor stating that the move was ‘essential to ensure fairness between individuals working side by side for the same employer.’
However, its introduction of the rules to the private sector following a recent consultation, will be delayed until April 2020 and will only apply to large and medium sized businesses. Under the reforms, responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker.
Business & Company Taxation
- The Chancellor confirmed that the corporation tax rate will remain unchanged at 19% and the planned change to 17% taking effect from 2020.
- A tax on large digital companies (defined as profitable and generating at least £500m a year in global revenue) that operate within the UK or provide services to UK customers to be introduced in 2020. Under the plan, large digital platforms would be charged 2% on the money they make from UK customers.
- The annual investment allowance is to be increased on a temporary basis from £200,000 to £1m, from January 2019 to 31st December 2020.
- A new non-residential structures and buildings allowance is to be introduced. Already given the short hand term SBR, a flat rate 2% capital allowance calculated on the amount of original construction costs over a 50-year period. There will be no balancing charge or allowance on the sale of the property, the purchaser will continue to claim the allowance. The provisions apply to construction works entered into on or after 29th October 2018.
- The current 100% first-year allowance for costs incurred on installing electric charge-points will continue until 2023 to further encourage the take up of electric vehicles.
- Business rates bill for firms with a rateable value of £51,000 or less to be cut by a third over two years.
- Targeted relief for acquiring intellectual property rich businesses is to be introduced. In addition, no Intangible Fixed Asset (IFA) degrouping charge will be triggered from 7th November 2018 where degrouping is the result of a share disposal that qualifies for Substantial Shareholding Exemption.
- Research & Development Tax Credit Anti-Avoidance – HMRC has identified (and prevented) fraud attempts on the repayable tax credit available via R&D either where there is no legitimate R&D activity or via structures set up deliberately to claim the payable tax credit despite having no or little employment or activity in the UK. Although the measure is to be consulted upon, in the Budget it was announced that the amount a loss-making company can receive in R&D tax credits will be capped at three times its total PAYE and National Insurance contributions liability from April 2020. (A similar measure was in place, when the relief was introduced 18 years ago).
The Treasury says this will deter abuse because fraudulent companies typically do not employ many people or pay PAYE and NICs. The cap will therefore ensure that the relief goes to companies that have a real UK presence, while close to 95% of companies currently claiming the payable credit will be unaffected. Nevertheless, the government recognises that some genuine companies with UK R&D activity may have low PAYE and NICs liability relative to R&D spend and therefore could be affected by this measure. In these cases, the companies will still be able to claim payable credit up to the cap with any unused losses carried forward to be set against future profits.
This measure is likely to have an impact as it is common for new companies to have little in the way of salary costs, but the results of the consultation and final draft legislation need to be seen to establish the impact.
- The Budget confirmed that non-UK companies engaged in any type of UK property business will pay UK corporation tax, as opposed to income tax. Further details of the change can be found in our September newsletter.
- For the second Budget in a row the VAT registration and deregistration thresholds are unchanged and will remain so until April 2022.
- VAT on vouchers is to be brought into line with EU legislation to be introduced to ensure that the correct amount of VAT is charged on what the customer pays, irrespective of whether payment is with a voucher or other means of payment.
- VAT collection by “split payment” – the government is looking at a split payment model to reduce online VAT fraud by third country sellers and improve how VAT is collected on cross-border e-commerce. An Industry Working Group will also be established to address some of the main challenges associated with this policy through close cooperation with stakeholders.
- Anti-avoidance measures to counteract VAT offshore looping in financial services where UK insurance companies recover VAT on intermediary services supplied to offshore entities, normally Gibraltar insurers, and to counteract avoidance of VAT on purchases made via overseas branches.
Stamp Duty Land Tax
Last year’s announcement of the abolition of ‘first-time buyers’ stamp duty on properties up to £300,000 will now be extended to first-time buyers of shared ownership properties up to £500,000. A shared ownership property is where you own a share of the property, acquired from a Housing Association and then rent the part you do not own at a reduced rate. This change will apply to relevant transactions with an effective date on or after 29th October 2018 and will also be backdated to 22nd November 2017 so that those eligible who have not previously claimed first-time buyers’ relief will be able to amend their return to claim a refund.
- Beer, cider and spirits duties to be frozen.
- Duty on a bottle of wine to rise by 8p, in line with inflation, in February 2019.
- Tobacco duty will continue to rise by inflation plus 2% meaning that a packet of 20 cigarettes will go up by 33p.
- Fuel duty to be frozen for a ninth year in a row.
- Remote Gaming Duty to increase to 21% for online gambling on “games of chance” from 2019.
- Short-haul rates of Air Passenger Duty will not rise. Long-haul rates will rise in line with inflation.
Harbour Key Limited
30th October 2018