Autumn Budget 2018 - Headline Announcements
In today’s Budget, the Chancellor Philip Hammond signalled an end to the era of austerity in a Budget that “shows the hard work of British people has paid off.”
The lead up to the Budget has somewhat been overcast with Brexit taking the headlines for many months and as part of his Budget speech the Chancellor commented that Brexit negotiations were at a “pivotal stage” but that if we “get it right we will harvest a double dividend.”
Mr Hammond set out forecasts by the Office for Budget Responsibility (OBR) that showed debt continuing to fall in each of the next five years, despite extra spending on items including £400m for “little extras” for schools, £1.7bn for Universal Credit work allowances and the Prime Minister, Theresa May’s earlier commitment this year to provide annual funding increases for the NHS averaging 3.4% in real terms over the next five years.
Borrowing this year will be £11.6bn lower than forecast at the Spring Statement, at 1.2% of GDP, and is then set to fall in cash terms from £31.8bn in 2019-20 to £26.7bn in 2020-21, £23.8bn in 2021-22, £20.8bn in 2022-23 and £19.8bn in 2023-24.
The OBR expect “resilient” growth over the coming years and, as a result of this growth, estimate the public net borrowing requirement will be down from that forecast in the Spring Statement.
However the OBR have already accused the Chancellor of spending much of the gains from the better economic outlook on easing government cuts instead of increasing the buffer against a bad Brexit.
Overall, a positive Budget, leaving us now waiting in anticipation to see how this fits with a final Brexit deal.
Annual Investment Allowance
The amount of Annual Investment Allowance (“AIA”) is temporarily increasing from £200,000 per annum to £1,000,000 per annum with effect from 1 January 2019. This increase will be effective for a period of 2 years until 1 January 2021, upon which date the amount of AIA will revert back to £200,000 per annum.
Special Rate Pool Writing Down Allowance
The rate of writing down allowance on the Special Rate Pool is reducing from 8% per annum to 6% per annum. This reduction will mean that businesses continue to receive full tax relief to reflect the deprecation of Special Rate Pool plant and machinery but over a longer period of time. The new rate will be effective from 1 April 2019 for companies and 6 April 2019 for businesses within the charge to Income Tax (sole traders, partnerships etc.).
New Structures and Buildings Allowance
The government will introduce a new Structures and Buildings Allowance (“SBA”) for new non-residential structures and buildings. Relief will be available on eligible construction costs incurred on or after 29 October 2018 where all the contracts for the physical construction works were also entered into on or after 29 October 2018.
Relief will be given at a flat rate of 2% per annum over a 50-year period and will be available on new commercial structures and buildings, including costs for new conversions and renovations. Crucially, the future sale of the structure/building will not result in a balancing adjustment in the seller’s capital allowances pool - instead, the purchaser will take over the remainder of the allowances written down over the remaining part of the 50-year period.
Enhanced Capital Allowances
The government will introduce measures to end the Enhanced Capital Allowances (“ECAs”) available for products on the Energy Technology List and Water Technology List, including the associated first year tax credit, from April 2020 onwards.
Research & Development Tax Relief
From 1 April 2020, the amount of payable Research & Development (“R&D”) tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.
As of 6 April 2019, the Government have announced that a year earlier than expected, the personal allowance will increase from £11,850 to £12,500 and the basic rate limit will increase from £34,500 to £37,500. As a result of this individuals will not begin to pay tax at the higher rate until their income exceeds £50,000, a £3,650 increase when compared to the current rates. These new allowances will also be applicable for the tax year beginning 6 April 2020.
Van and Fuel Benefit in Kind
The benefit in kind charge in relation to vans and fuel provided by employers to employees for private use will increase by the Retail Price Index from 6 April 2019. The flat rate van benefit charge will increase to £3,430, the multiplier for the car fuel benefit charge will increase to £24,100 and the flat rate van fuel benefit charge will increase to £655.
Gift Aid Small Donations Scheme
Currently the Gift Aid Small Donations Scheme (“GASDS”) only applies to donations of £20 or less made by individuals in cash or by contactless payment. The government have announced that they will be increasing this limit to £30 with effect from April 2019.
Increases to Charities’ Small Trading Exemption Limits
A charity does not pay tax on profits that it makes from charitable trading that is part of its primary purpose, for example, sale of tickets for a theatrical production staged by a theatre. Where a charity’s trading does not relate to its primary purpose (for example, where a charity sells Christmas cards to raise additional funds) its profits are also exempt from tax if its turnover is below the applicable small trading tax exemption limit.
The current small trading tax exemption limits are as follows:
|Annual charity income||Maximum non-primary purpose trading|
|£20,001 to £200,000||25% of charity’s total annual turnover|
The government have announced a measure to increase the limits to the following with effect from April 2019:
|Annual charity income||Maximum non-primary purpose trading|
|£32,000 to £320,000||25% of income|
CAPITAL GAINS TAX
One of the conditions an individual must satisfy in order to claim Entrepreneurs’ Relief is that the shares being disposed of must be held in a ‘personal service company’, which was previously defined as a company in which the individual making the disposal had a 5% holding of the nominal share capital and voting rights. This definition however has been extended meaning that individuals who make a capital disposal on or after 29 October 2018 will now be required to hold a 5% interest in both the distributable profits and net assets of the company, in addition to nominal share capital and voting rights.
In order to encourage entrepreneurs to be involved in companies over a longer term, the Government have extended the minimum period throughout which the conditions for Entrepreneurs’ Relief must be met in order for an individual to claim the relief from 12 months to 24 months. This measure will come into effect for disposals made on or after 6 April 2019, except where a business ceased before 29 October 2018.
Annual Exempt Amount
The Government have announced that the capital gains tax annual exempt amount will increase from £11,700 to £12,000 for disposals made on or after 6 April 2019. The amount for trustees of settlements will increase to £6,000.
Principal Private Residence Relief
The availability of Principal Private Residence relief, which exempts gains on the disposal of an individual’s main residence, will be restricted from April 2020 by reducing the availability of the relief. Currently the last 18 months of ownership qualify regardless of occupation however this is to be reduced to 9 months.
Lettings Relief, which exempts up to £40,000 of gains when an individual lets out a property that has been at some point their principal private residence during the period of ownership, will also be restricted from April 2020 by only allowing the relief for owners who lived in the property with their tenant.
It was announced that the scope of the UK’s taxation of gains accruing to non-UK residents will extend to the disposal of all UK property and not be restricted to residential property as is currently the position.
If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Partners, Steve Crompton or Chris Barrington on the details below:
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
direct dial: 01942 292505
mobile: 07730 436070