So the budget was on a Monday not a Wednesday, at a later time of 3.30 and it wasn’t the shortest speech. There was a promise of increased spending in the healthcare and in particular on mental health. That is definitely welcomed, lets hope it reaches the areas where it is most needed. They say “austerity is coming to an end” and we shall have “an economy working not for the few, not even for the many, an economy working for everyone”. National living wage is to increase to £8.21 per hour from April 2019.
It all sounds good although we also have a Brexit deal or no deal round the corner which could have an impact depending on what is in the box when it is finally revealed. Interesting times.
I have summarised a few key points from the budget yesterday which may be useful to our clients. It is not a complete list of all the notices published but is a summary of main issues I think will be relevant to my clients. It goes without saying but always seek advice before making any tax decisions:-
To be increased from £11,800 to £12,500 from April 2019, a year earlier than previously suggested.
The basic rate income tax band will be increased to £37,500 and the higher rate income tax band will also increase to £50,000 next year.
So there are some small savings to be had there.
The Public Sector has been dealing with new reforms to the IR35 anti avoidance legislation. Before the Budget we were aware that it may be extended to Private Sector. This is not ideal but fortunately they have had enough common sense to delay its introduction till April 2020 as businesses have enough to deal with with Brexit and Making Tax Digital.
Good news for some of my clients is that the new reforms will not apply to small businesses. This does not mean that small businesses can ignore IR35 completely though. IR35 is the anti avoidance legislation which aims to tax income as employment income where it is in essence employment income that has been disguised as something else. It often affects contractors working through their own limited company for one client.
If you are in any doubt about whether IR35 affects you, you should seek advice.
Capital Gains Tax
The capital gains tax allowance is increasing from £11,700 to £12,000 from April 2019. Trusts and personal representatives will benefit from the smaller capital gains tax allowance of £6,000.
Private Residence Relief.
Private Residence Relief is the relief which enables people to sell their homes without paying tax on any increase in value. Its application is not always as straight forward as that in real life situations.
Sometimes people buy off plan and don’t live in the property straight away or they have to carry out work before moving into their house. Sometimes people struggle to sell their home as quickly as they need to and have to rent it out and sometimes people move out of their home into a care home.
When first introduced the relief was 12 months, then increased as high as 36 months and is now set to fall to 9 months.
So the last 9 months of ownership will qualify for relief even if you don’t live in your house (assuming you meet all the other conditions). This will catch a few people out if they seek tax advice too late after moving out of their home.
If you are thinking of moving out of your home before it is sold, it may be worth seeking advice. Similarly, if you have already moved out of your home it may be worth considering whether you can benefit from the 18 months that is currently available, in advance of the changes.
The good news is that people moving out of their home to live in care homes will still qualify for the 36 months time frame. I think that is important as when someone moves into a care home they often hope they can go back home and families don’t want to empty homes and sell up within 9 months and take that hope away from them.
This is a useful relief and applies where you have lived in your house as your home for a period of time and then decide to move out and let it for a while before selling. In simple terms a gain of upto £40,000 in respect of the letting period would be relieved from tax. That is to change and only be available where the owner is in shared occupancy with the tenant. I haven’t come across that situation very often when clients have claimed lettings relief.
These rules will bite from April 2020 so people have time to put their assets in order. It may be worth considering whether it is beneficial to trigger the gain earlier to claim these full reliefs. If you need further tax advice on your property portfolio please do not hesitate to contact me.
Residence Nil Rate Band
Whilst we are on the subject of properties I notice there is a proposal to amend the Residence Nil Rate Band in respect of downsizing. When you die you can leave assets up to the value of your nil rate band and in addition you can leave your home to direct descendants up to the residence nil rate band value.
The amendment will apply to situations where you give away your home but have a gift with reservation of benefit, probably because you still live in the house. If this applies to you and the property does not automatically fall in the descendants estate, when you die, as a result of the original gift then it will not qualify for the relief.
This may affect those who transfer their property into trust but still live in it.
Non resident companies carrying on UK property business
Non resident companies carrying on UK property business will pay corporation tax instead of income tax from 6 April 2020. This is to prevent people using offshore companies to reduce their tax bill on UK property income.
When he mentioned those words my heart sank and I thought please don’t change the rules again. We had Retirement relief, then Taper relief and now Entrepreneur’s relief. People older than me may remember rules before Retirement relief but that shows how long I’ve been in tax.
Fortunately he only changed Entrepreneur’s relief by extending the time frame in which you have to qualify from 12 months to 24 months and the conditions applying to Company shares.
This means that people holding shares, business interests and assets for less than 24 months will not qualify for the relief.
Long term tax planning is even more important now to make sure that you own your business in the right way so that should you decide to sell in 2 years time you will qualify. It was easier to make changes to your business structure and wait 12 months before selling, however people with a possible sale may find it more difficult to get buyers to wait 24 months. Entrepreneur’s relief is also important for succession planning and on retirement and winding up your business, so don’t wait till the last minute to seek advice.
You need to make sure you have sufficient shares in a company to qualify and that your business interests are held in the correct way. The conditions for the type of shares has also changed and you will need to own shares that have 5% of votes, capital, distributable profits and net assets. Some Alphabet shares may need to be revisited as may no longer qualify. Also if you have business interests in a Trust please seek advice as so often these are not set up in a way that they can qualify for Entrepreneur’s Relief.
The adult limit for ISAs remains at £20,000 however the Junior ISA allowance will increase to £4,368 from April 2019.
There was suggestion that the annual allowance for pension contributions would be reduced. Fortunately there were no changes to that. Instead The Lifetime Allowance, which is the maximum you can save in your pension pot, is to be increased to £1,055,000 in 2019.
Stamp Duty for first time buyers
First time buyers of shared ownership properties, in England and Northern Ireland, of upto £500,000 will not have to pay stamp duty land tax. This is applied retroactively to 22 November 2017 so some people may be able to claim a refund. Good news for some.
There are some changes to capital allowances.
The Annual Invesment Allowance is to be increased to £1m.
Energy efficient capital allowances will end from April 2020.
100% FYAs for electric charge points will be extended, instead of coming to an end.
There will be a reduction in the special rate of allowance for certain plant and machinery from 8% to 6%.
There is also to be a new SBA (Structures and Buildings Allowance) for new non residential structures and buildings. It will be a 2% Straight Line allowance and will not change with change of ownership, so there will be no balancing allowances/charges. There are conditions to be met and it will also apply to refurbishments and conversions of existing structures. The relief is only available when the property is brought into use. It only applies to constructions costs that qualify and are incurred after 29 October 2018. It will apply to hotels and care homes. Seek further detail if this is relevant to you.
Research & Development
From April 2020 the amount of payable credit a qualifying loss making business can receive through relief in any one year will be capped to 3 times the company’s total PAYE & NIC liability for that year.
To protect companies that genuinely have R&D activity and low PAYE/NIC bills, those companies will be able to claim payable credit upto the cap and any unused losses can be carried forward to set against future profit.
This measure is to deter abuse from fraudulent companies that often don’t have employees or even a UK presence.
VAT on vouchers
The changes in the way VAT will be dealt with on vouchers will go ahead as planned from January 2019. There will be new definitions to align with EU law.
VAT will be payable on single purpose vouchers at time of issue and VAT will be payable on multi purpose vouchers at redemption.
If you issue vouchers in your business and are VAT registered take a look.