Chancellor Phillip Hammond revealed his Budget 2018 yesterday but what will be the impact for private individuals?
The ending of the ‘era of austerity’ combined with a welcome boost to public spending have dominated the post-Budget headlines. As ever with tax, the devil is in the detail and this article takes a look behind some of the headlines to see if the Chancellor’s Budget delivered more trick or treat?
Greater change for Scottish taxpayers may come in the Scottish government’s own budget on 12 December where rates and bands for personal income tax, and land and buildings transaction tax, are devolved to the Scottish parliament.
The UK budget therefore deals with UK-wide aspects of private wealth, particularly in relation to savings and investment, capital gains tax (CGT) and inheritance tax (IHT), plus SDLT on properties in the rest of the UK. CGT and IHT are not devolved to the Scottish Government
From 6 April 2019 the income tax personal allowance is increased by £650 (5.5%) to £12,500 and the higher rate (40%) threshold is increased by £3,650 (8%) to £50,000. There is no change to the threshold at which the top rate of income tax becomes payable (£150,000). This will result in the commitments set down in the Conservative’s manifesto being met 12 months earlier than scheduled.
Scottish resident taxpayers will benefit from the increased income tax personal allowance. The increased higher rate threshold will, however, only be potentially available to higher rate Scottish taxpayers with savings and dividend income.
The Scottish rate of income tax (SRIT) applies to earnings of Scottish tax payers arising from employment, self-employment, pension income and property income. There may therefore be a continuing divergence between Scottish taxpayers and taxpayers in the rest of the UK where, at present, the 41% higher rate threshold for a Scottish taxpayer is currently set at £44,274. We will have to wait and see the response of the Scottish Government in the Scottish Budget in December.
The proposed introduction of a shared occupancy test for those claiming income tax rent a room relief has been dropped with a ‘main or only residence’ test continuing to be applied.
The Government announced that from 6 April 2020 large and medium businesses in the private sector will become responsible for the assessment of an individual’s employment status when they are engaged to carry out work. This measure introduces an additional layer of compliance to the existing off-payroll working rules (IR35) and will bring parts of the private sector into line with the rules applied in the public sector.
It was also announced that the Government will publish a consultation on how to make the taxation of trusts simpler, fairer, and more transparent. This was originally announced at the 2017 Budget.
Capital gains tax
There was no change to the rate of CGT for individuals where the rates are 10% for gains within the available basic rate band and 20% for gains within the higher rate and additional higher rate bands. The rate for trustees remains 20%. In both cases, the additional 8% surcharge on gains on residential property remains unchanged. The CGT annual exemption for individuals and executors will increase from £11,700 to £12,000 with effect from 6 April 2019 (£6,000 for trustees).
The Government announced that they would be introducing reforms to the rules for CGT principal private residence relief for capital gains arising on the disposal of a taxpayer’s main residence with effect from 6 April 2020. There will be a consultation on (i) lettings relief only being available when the owner is in shared occupancy of the property with the tenant; and (ii) reducing the automatic final period of ownership exemption from 18 months to 9 months.
Entrepreneur’s relief reduces the effective rate of CGT from 20% to 10% on the disposal of qualifying business assets (e.g. the disposal of a business, a partnership interest or personal company shares). The Government have announced that from 6 April 2019 business owners must satisfy the qualifying conditions for ER for a minimum period of two years in order to encourage longer-term investment. This doubles the current minimum ownership period of 12 months. The Government also introduced with immediate effect additional qualifying requirements for shareholders looking to claim entrepreneur’s relief.
Following consultation, non-UK residents disposing of UK land (or interests in entities holding UK land) will be subject to UK CGT rules on any gains accruing after April 2019. Non-UK residents are currently only liable to CGT on the disposal of UK residential property and on the increase in value from 5 April 2015. The purpose of this measure is to have a level playing field for UK resident and non-UK residents on the disposal of any real property situated in the UK.
The introduction of a 30 day window for the reporting and payment of CGT arising on the disposal of residential properties by UK residents is still scheduled to come into effect for disposals on or after 6 April 2020.
Savings, pensions and inheritance tax
The savings income that is subject to the 0% starting rate will continue to remain at its current level of £5,000 in the 2019/20 tax year.
The Individual Savings Account (ISA) annual subscription limit will remain unchanged at £20,000 for the 2019/20 tax year. There has not been an increase since 6 April 2017. The annual subscription limit for Junior ISAs and Child Trust Funds for 2019/20 is being increased in line with inflation to £4,368. A consultation will be published on introducing regulations for maturing Child Trust Fund accounts.
The lifetime allowance for pension savings will also increase in line with inflation, rising by £25,000 to £1,055,000 for the 2019/20 tax year.
There are no changes to the amounts which can be contributed to pension funds with the benefit of tax relief, nor reduction in the amount of relief given.
There was also no changes announced to IHT beyond a couple of minor technical amendments to the residence nil rate band and additions to trusts established by non-UK domiciles. The Office of Tax Simplification are still to publish their report on the current IHT regime and potential future reform.
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