Philip Hammond commenced his Autumn 2018 budget with much information regarding the state of the economy. The chancellor was pleased to report that national borrowing is £11.6bn lower than predicted back in March with total debt as a percentage of GDP expecting to fall every year to 2023-24 after its peak in 2016-17.
Brexit itself was hardly mentioned other than to confirm that an extra £500m was being set aside for preparations to leave the EU.
But how does the budget actually affect you? In my opinion here are the main points to be aware of:
The Chancellor went one step further than previously announced by bringing forward the anticipated £50,000 higher rate threshold and the personal allowance of £12,500. This will now take effect from April 2019 saving a basic rate tax payer £130 and a higher rate tax payer £730 per annum. I am sure this will be a welcomed measure for many voters.
Phillip Hammond has confirmed his commitment to not tax the sale of a person’s principal private residence. However, there has long been a relief for property owners that have let a property they used to live in. This relief is called letting relief which can remove up to £40,000 (£80,000 for joint owners) of capital gain on the sale of the property. With effect from April 2020 lettings relief will be removed unless the property is shared with the tenant. In addition to this the 18 months “assumed ownership” allowance after moving out of the property will be reduced to 9 months.
In my opinion there will be many tax payers who have chosen to rent out their former residence that will lose an attractive tax reducer from April 2020. It is advisable to assess the current tax position as depending on personal circumstances it could be worth bringing forward the sale of a let property which was previously your main residence.
Corporation Tax Rates
There was no announcement regarding the main rate of Corporation Tax but having reviewed the detail there remains a commitment to reduce to 17% by 2020 which I do welcome. As a sweetener the Chancellor announced that the Annual Investment Allowance will increase from £200,000 to £1million from 1 January 2019 for 2 years. £200,000 was sufficient for many small businesses but for capital intensive businesses such as hauliers and printers the next 2 years may be the time to invest in equipment to make the most of this allowance.
There has been growing pressure to scrap or reduce the £10million allowance for entrepreneurs designed to give them an effective capital gains tax rate of 10% on the sale of their business. The Chancellor confirmed during the budget that this would be kept but in order to help ensure that it is only utilised by true entrepreneurs the qualifying period of ownership has been increased to 2 years from the current 1 year condition.
R&D Tax Credit
Although this does not affect many businesses there are some small and medium sized businesses that are loss making and spending large amounts on research and development. This measure will see the amount of the repayable tax credit capped at 3 times their annual PAYE and national insurance payments to HMRC and has been introduced to combat abuse and fraud in this area.
There was an announcement that the stamp duty changes introduced last year for first time buyers will also apply to first time buyers under shared equity ownership. This change is also set to be retrospective from last year when the initial change was made.
Fuel and alcohol duty on beer and cider has been frozen which is good news for us all (especially pubs). However additional duty on cheap strong “white cider” from 1 February 2019 will continue as planned. There was also an announcement to save a third of business rates for 2 years where you have with a rateable value of less than £51,000 which I am sure is a welcome measure for small businesses in retail.
Overall this budget had no shock announcements for headline numbers with higher rate tax payers earning less than £100,000 likely to benefit the most. However some small changes to Entrepreneur’s relief, letting relief and a restriction on the amount of R&D tax credits could have a significant effect on a number of individuals without hitting the average voter.
If you have any questions regarding the Autumn 2018 Budget then please call your local Lambert Chapman contact on 01376 326266.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.