As previously announced, this was the main theme of the Chancellor Phillip Hammond’s third budget but what we were waiting to hear was where the extra money was going to come from? Had he found a “Magic Money Tree”, or would tax and borrowing have to increase?
We now know that the extra money will come from better than expected economic growth and consequential increased tax revenues. But there may have to be a Spring 2019 Budget if Brexit negotiations don’t go to plan….
Summary for the Private Client
As a firm of Chartered Tax Advisors, we have what is largely regarded as a ‘private client’ tax focus; working with individuals and the vehicles in which they choose to hold their investments or operate their trade.
Here is the 2018 budget round up, concentrating on key areas affecting our client base;
- Personal Allowance and higher rate increase – The Government’s manifesto pledge back in 2015 was that the personal allowance would rise to £12,500 in 2020 and the higher rate tax threshold to £50,000. However, the Chancellor has decided to bring forward these increases one year early from 2019/20. Those receiving income in excess of £100,000pa will still be subject to the personal allowance claw back; losing this in full once their income reaches £125,000.
- No change to the rates of personal taxation – There had been rumors that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and then 38.1% depending upon whether the dividends fall into the basic rate band, higher rate band or the additional rate. Note that only the first £2,000 of dividend income is now tax free. The basic rate and higher rate of income tax remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.
- Restriction to Principal Private Residence (PPR) Relief – When selling a PPR the last 18 months of ownership were exempt when calculating the capital gain, regardless of whether the property was occupied. From 6th April 2020 this will be reduced to 9 months. This will not override the 36 months of exemption for those who are disabled or in a care home.
- Letting Relief – Again from 6th April 2020, it is expected that the rules of letting relief will be amended so that it only applies to sales of property where the owner of the property and the tenant had shared occupancy of the property. Please see our more detailed article on letting relief.
- Non-resident sales of non-residential UK property – The non-resident capital gains tax (NRCGT) scheme, which came into force in April 2015, is now expected, with effect from 6th April 2019, to be extended to the sales of non-residential property. This would mean that all sales of UK property would fall within the scope of the legislation and it would be a requirement of the seller, to declare the position to HMRC within 30 days of conveyance.
- Capital Gains payment window – At present, any gains relating to the sale of property are declared through an individual’s self-assessment tax return or, if a company, through their accounts. Any tax due on these gains are payable within the normal statutory deadline relating to that filing. In April 2015, individuals subject to NRCGT were required to pay any tax due resulting from the sale within 30 days of the conveyance, unless a notice to file a self-assessment tax return that year, had already been issued. As a further change to the regime around the sale of UK property: –
- From 6th April 2019, all sales of UK property by non-residents, will require that the payment of the associated tax liability, is made within 30 days of conveyance.
- From 6th April 2020, it is proposed that the 30 day reporting and payment regime will apply to all UK property sales regardless of the residence position of the seller. There will be an exemption to this for those selling property which is covered entirely by PPR relief.
- Time limits for assessments involving non UK income or gains – The number of years for which HMRC can raise a retrospective assessment is currently dependent on the ‘behaviour’ which resulted in the tax not being correctly declared by the normal statutory deadlines. For ‘careless’ behaviour this is currently limited to 4 years, for failure to take enough care but without having a reasonable excuse this is limited to 6 years. From 6th April 2019, these time limits will be increased to 12 years, regardless of the behaviour.
- Entrepreneurs Relief, changes to qualifying criteria – The Chancellor has announced that the minimum qualifying period for CGT entrepreneurs’ relief will be increased from 12 months to 24 months for disposals on or after 6 April 2019. There are further changes affecting shareholdings in personal companies. In addition to the individual holding 5% or more of the ordinary share capital and voting control they will also now be required to be entitled to 5% or more of the company’s distributable profits and assets in a winding up. There is no change to the requirement for the individual to be an officer or employee of the company concerned and the company must be a trading company or the holding company of a trading group.
Should you require any further guidance or information in anything you have read above, or elsewhere, please contact us.
Full details of the 2018 Budget can be found here