Budget Key Tax Highlights
The Chancellor Philip Hammond presented his second Autumn Budget on Monday 29 October 2018. In his speech he stated that ‘austerity is coming to an end – but discipline will remain’. He also promised a ‘double deal dividend’ if the Brexit negotiations are successful but stated that there may be a full-scale Spring Budget in 2019 if not.
Personal tax changes – allowance and basic rate band increases
At the Budget, the Chancellor announced that increases to the personal allowance and basic rate band for 2019/20. The personal allowance is currently £11,850. The personal allowance for 2019/20 will be £12,500. Also for 2019/20, the basic rate band will be increased to £37,500 so that the threshold at which the 40% band applies is £50,000 for those who are entitled to the full personal allowance. The additional rate of tax of 45% will remain payable on taxable income above £150,000.
Minimum Wage Increases
From April 2019, National Living Wage will increase by 4.9%, from £7.83 to £8.21 an hour.
Pension Lifetime Allowance
The pension lifetime allowance will increase to £1.055 million for 2019/20, with no change to the annual allowances.
Capital Gains Tax
For 2019/20, the annual exempt amount for individuals and personal representatives will rise to £12,000.
From April 2020, the final period capital gains tax (CGT) exemption for owner-occupied residential property will be reduced from 18 months to 9 months. The lettings relief will only apply where the owner of the property is in shared occupancy with the tenant.
Collection of capital gains tax on residential disposals
The Chancellor confirmed that both UK and non-UK residents will need to make a payment on account of capital gains tax following the completion of certain residential property disposals. This requirement will be in force from 6 April 2019 for non-UK residents and 6 April 2020 for UK residents. This measure does not impact on Principal Private Residence relief (“PPR”) so sales of a person’s main home should still be exempt from capital gains tax, subject to the application of the PPR rules (which were also subject to some slight tweaks in the Budget).
Capital allowances changes
A number of changes to capital allowances were announced at the Budget, including an increase in the Annual Investment Allowance (AIA), for two years to £1 million, in relation to qualifying expenditure incurred from 1 January 2019. The AIA is currently £200,000 per annum.
- A reduction in the rate of writing down allowance on the special rate pool of plant and machinery, including long-life assets, thermal insulation, integral features and expenditure on cars with CO2 emissions of more than 110g/km, from 8% to 6% from April 2019.
- An extension of the current 100% first year allowance for expenditure incurred on electric charge-point equipment until 2023.
In addition, a new capital allowances regime will be introduced for structures and buildings. It will be known as the Structures and Buildings Allowance and will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis.
Entrepreneurs’ Relief changes
The government announced, as part of the Budget, that some changes are being made to the rules for Entrepreneurs’ Relief (ER) with immediate effect for disposals on or after 29 October 2018. Two new tests are to be added to the definition of a ‘personal company’, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The existing tests already require a 5% interest in the ordinary share capital and 5% of voting rights.
Minimum qualifying period
The government will legislate in Finance Bill 2018-19 to increase the minimum period throughout which certain conditions must be met to qualify for ER, from one year to two years. The measure will have effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018.
Where the claimant’s business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.
Dilution of holdings below 5%
Draft legislation has already been issued to provide a potential entitlement to ER where an individual’s holding in a company is reduced below the normal 5% qualifying level (meaning 5% of both ordinary share capital and voting power). The relief will only apply where the reduction below 5% occurs as a result of the company raising funds for commercial purposes by means of an issue of new shares, wholly for cash consideration.
Where a disposal of the shareholding prior to the issue would have resulted in a gain which would have qualified for ER, shareholders will be able to make an election treating them as if they had disposed of their shares and immediately reacquired them at market value just before dilution. To avoid an immediate CGT bill on this deemed disposal, a further election can be made to defer the gain until the shares are sold. ER can then be claimed on the deferred gain in the year the shares are sold under the rules in force at that time.
IR35 extended to the private sector
As expected, the chancellor has gone forward with the extension of the off-payroll working rules (IR35) to the private sector. But after some recent legal cases and issues with checking employment status for tax, made it clear that there was a need to proceed with care, the implementation date has been put back to April 2020 and the change affects large and medium-sized businesses only.