In a Budget speech lasting over one hour, the Chancellor appeared to present a giveaway Budget to UK taxpayers. However on closer inspection, some of the headline grabbing measures are indeed temporary. in particular, the increase in the annual investment allowance and the one third cut to business rates for certain retail properties. Indeed, having moved the UK Budget to the Autumn time, in his speech, the Chancellor reserved his right to upgrade the summary Spring Statement into a full fiscal event hinting that post Brexit there will be another full UK Budget.
The main measures introduced by the Budget across the various taxes are summarised below:
On the personal tax front, the big surprise was the advancement by one year of the introduction of the increased personal allowance of £12,500 and the increase in the higher rate threshold of income tax to £50,000 taking effect from 6 April 2019. From 2021/22, the personal allowance and higher rate thresholds will increase in line with inflation. It should be noted however that your personal allowance of £12,500 is reduced by 50p for every pound that your income exceeds £100,000. This is an important planning point for high earners.
Class II National Insurance which is paid by the self-employed, was set to be abolished but will now remain.
Whilst Individual Savings Account subscription limits remain at £20,000, the lifetime allowance for pensions increased to £1.055m and there was no change to the annual amount of £40k that a taxpayer can invest in a pension despite many commentators expecting this to be reduced. Indeed, in the winter, the Department for Work and Pensions will publish a paper setting out the government’s approach to increasing pension participation and savings persistency among the self-employed.
On the capital gains tax side, the annual exempt allowance increases to £12,000 and while many business owners nearing retirement breathed a sigh of relief when entrepreneurs relief was retained at its generous 10% tax rate, the qualifying holding period to avail of entrepreneurs relief was doubled to 24 months which was done to tackle tax avoidance. Furthermore, from Budget Day, shareholders claiming entrepreneurs relief must be entitled to at least 5% of the distributable profits and net assets of the company in addition to the current requirement of holding at least 5% of the share capital and voting rights.
There were some changes to the capital gains tax around the sale of private residences and from April 2020 the lettings relief element of the capital gain arising on the sale of such a property will only be available where the owner of the property is in shared occupation with the tenant. The final period of exemption, which was once 36 months, has been reduced to 9 months except in cases where the occupant is a disabled individual or in a care home.
Inheritance tax remains unchanged with the nil rate band at £325k and the residents nil rate band will increase to £150k from 6 April 2019 as already legislated.
On the business tax front there were surprise announcements with the annual investment allowance for qualifying plant and machinery increasing from £200k to £1m, this is to take effect for a two-year period from 1 January 2019. Furthermore, a new 2% capital allowance will apply to qualifying capital expenditure on new non-residential buildings and structures with effect from 29 October 2018. This relief looks to be calculated similar to the former industrial building allowance which was scrapped several years ago. The Chancellor maintained his commitment to reduce corporation tax which will fall from its current level of 19% to 17% from 2020.
There was welcome news for retailers with business rates for retail shops being reduced for a two-year period commencing in April 2019 by one third for those properties with a rateable value below £51k. Furthermore, first-time buyers relief in England and Northern Ireland is to be extended.
With the introduction of making a tax digital for VAT, it was unsurprising that the VAT registration threshold will remain at £85k until April 2022.
Finally there were several announcements in relation to tax avoidance measures that the government is taking with the most surprising being the reintroduction of HMRC’s preferential credit status which will take effect from 6 April 2020. This will mean that when a business enters insolvency, HMRC would be treated as a preferential creditor in respect of those taxes collected and held by businesses on behalf of other taxes such as VAT and PAYE.
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