Despite some speculation before the Budget was announced, there were no big surprises in store for UK-based individuals in Philip Hammond’s plans. However, there were a number of things to note with regard to individual finances, which we will explore in this budget review.
Budget Review: Personal Allowance, CGT and Savings Income
Whilst no changes are to be made to income tax rates, inheritance tax rates, or capital gains tax rates, the personal allowance threshold will be raised to £12,500 from April 2019. In addition, the 40 percent threshold will increase to £50,000. These thresholds will be frozen during 2020/2021, after which time they will be indexed according to CPI (consumer price index). This welcome change was promised as part of the Conservative manifesto, and has been introduced a year ahead of schedule.
In addition, the CGT exempt amount for individuals will be increased to £12,000 for the 2019/2020 tax year (for the majority of trustees, the exempt amount will rise to £6,000).
In terms of savings, there were no big changes. The ISA annual subscription limit will continue to be set at £20,000; similarly, the 0 starting rate for the first £5,000 of savings income will continue to apply.
Budget Review: Extension to First-Time Buyer’s Relief
Purchasers of shared ownership property who are also first-time buyers will now benefit from first-time buyer’s relief. The amendment will apply to qualifying purchases from 29thOctober 2018 (and will be backdated to the date first-time buyer’s relief was originally introduced: 22nd November 2017).
Budget Review: Private Residence Relief
From April 2020, the government plans to impose two restrictions to PRR relief. Previously, if a property eligible for PRR was rented to residential tenants for a portion of the ownership period, the owner’s gains were reduced by up to £40,000. In future, this relief will only apply in instances where the owner shares occupation with the tenant(s).
In addition, the final period of exemption will be reduced from 18 months to 9 months. The exception to this rule will be for individuals who have moved into care homes: in those circumstances, the original 36 months of deemed occupation will still apply.
Budget Review: Entrepreneurs’ Relief
Entrepreneurs’ Relief allows for a reduced CGT rate of 10 to be applied to qualifying disposals. The Autumn Budget set out a number of changes to ER going forward.
At present, in order for shareholders to be eligible for Entrepreneurs’ Relief, they must hold at least 5 of the voting rights (and at least 5 of the organisation’s share capital). Going forward, shareholders will be subject to more rigorous tests: they will only be entitled to ER where it relates to ‘true entrepreneurial activity’. In practice, this means that shareholders with shares that do not entitle them to 5 of the distributable profits and 5 of the net assets on winding up no longer qualify for Entrepreneurs’ Relief.
In addition, from 6th April 2019 the holding period will double in length – meaning that assets will need to be held for at least 24 months before disposal.
This could mean that Entrepreneurs’ Relief is no longer available for certain companies; as such, it is advisable that share structures are reviewed immediately. In some instances, it might be a good idea to look into Enterprise Management Schemes (shares acquired under EMI schemes are not subject to the 5 test in order to qualify for ER).
Along with the changes announced in the Budget, several future measures were also outlined. These include (but are not limited to):
- The 2019/2020 Finance Bill will include provisions for HMRC to crack down on tax avoidance. New legislation will be introduced to give HMRC the power to make directors (and other relevant persons) practising tax avoidance, evasion or the regular formation/liquidation of new companies jointly and severally liable for business tax liabilities in cases where the company may deliberately file for insolvency.
- In addition, the 2019/2020 Finance Bill will set out legislative reforms to the Enterprise Investment Scheme Rules.
- A future Finance Bill is also expected to contain legislation on new late payment and late submission sanctions (following government consultations in summer 2018).
- The government plans to consult on the taxation of trusts in 2019, with a particular focus on increasing the fairness, simplicity, and transparency of the process.
If you require financial advice in light of the alterations detailed in this budget review, or in order to plan for future changes, please don’t hesitate to contact IBISS & Co. Our expert accountancy team are able to assist with a wide range of matters and will be delighted to arrange a no-obligation consultation with you.