The Chancellor of the Exchequer presented his Budget to Parliament on Monday 29 October 2018 with a somewhat rosier forecast as to the financial position of UK plc.
From a personal tax perspective, individuals will benefit from increases in both the personal allowance, to £12,500, and the higher rate PAYE threshold, to £50,000, from April 2019. Those who are self-employed will still be liable to pay class 2 National Insurance however as the Government’s previous plans of abolishment have not come to fruition.
One of the big ticket items to affect the corporate arena is the increase in the annual investment allowance from 1 January 2019 on the first £1m of qualifying expenditure. This is only a temporary increase to 31 December 2020 however, after which time it is intended that this will once again revert to £200,000. As before, those with different accounting periods will have to calculate relevant apportionment of the applicable rates to ensure compliance with the current and increased thresholds.
On another positive note, businesses will be entitled to deduct 2% of the cost of any new non-residential structures and buildings off their profits before they pay tax from 29 October 2018. This goes some way to compensate for the historic removal of industrial building allowances (IBAs), albeit at a less generous rate, which is hoped will promote investment in the UK’s infrastructure.
It is not all good news for capital allowances however as it was announced that writing down allowances available to assets in the special rate pool, which amongst other things covers integral features, long-life assets and all but the least polluting cars, will be reducing from 8% a year to 6% from April 2019. Further, one of the more surprising changes given the ever-increasing focus on green technology is the removal of enhanced capital allowances from April 2020. These currently provide up to 100% relief against profits for expenditure on either energy or water-efficient equipment but presumably both are necessary casualties in funding the chancellor’s other investment relief reforms.
In what could be viewed a continuation in the theme of property-focused tax changes, the government announced two alterations to private residence relief from April 2020. This is the valuable relief which is designed to protect the legitimate disposal of an individual’s main residence from the scope of capital gains tax. Gains attributable to periods of non-occupation have always been exposed to charge although reliefs exist to at least partially mitigate these. These include the final period exemption which protects the 18 months preceding disposal from tax, whether the property is occupied or not. As part of this budget, it was announced that the exemption period would instead be reduced to 9 months from next April.
Another fundamental change is the future availability of lettings relief which can currently shelter up to £40,000 of chargeable gain per individual. This is to be largely withdrawn however with any future applications being in circumstances concerning shared occupancy only.
Continuing on the subject of capital gains tax, the government has not surprisingly made the perceived misuse of entrepreneur’s relief one of its main focuses this time around, introducing reforms to tackle what it feels are contraventions in the spirit of the legislation. Whist the vast majority of business owners are aware of the existence of this valuable relief, for the avoidance of doubt it allows individuals to dispose of qualifying business assets at a tax rate of only 10%. This is subject to the satisfaction of stringent criteria and a current lifetime allowance of £10 million which can equate to a tax saving of up to £1 million.
Changes rendered in the Autumn budget will have a significant impact on the number of individuals benefitting from this relief as it now directs that claimants must have held their interest for a minimum of two years (previously one year), and that any shareholdings guarantee at least a 5% interest in both distributable profits and net assets as opposed to just ordinary capital.
We would therefore suggest that should you harbour any future ambitions to sell your business interests, this should be discussed with your professional advisor as a matter of priority.
This last budget before Brexit has been relatively quiet when compared with those of recent times, something not entirely unexpected given the uncertainty surrounding our supposed departure from the European Union.
Included within the raft of announcements were those that will come as no great surprise, including the imposition of a digital services tax designed to hit the big tech companies, along with reformation of private sector off-payroll working (IR35) from April 2020. As with historic budgets however, there will always be winners and losers.
All we can hope is that Mr Hammond’s belief that austerity is indeed coming to an end will ring true, especially given the expected turbulent times ahead.