Chancellor Philip Hammond today announced in his Budget:
- An increase in the personal allowance to £12,500 and the higher rate threshold to £50,000 in 2019-20, a year earlier than planned.
- An extension to the SDLT cut for first time buyers for shared ownership up to £500,000, backdated to 22 November 2017.
- A retained but reformed Entrepreneurs’ Relief, with the minimum qualifying period being extended from 12 months to two years.
- A reform to lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant from April 2020, and a reduction in the Principal Private Residence (PPR) period at the end of property ownership.
James Hender and Lucy Brennan, partners in the Private Wealth Group at Saffery Champness, explain the significance of today’s announcements.
On the personal allowance and higher rate threshold increases being met one year early, James Hender, Head of the Private Wealth Group at Saffery Champness commented:
“As predicted, the Chancellor has been able to use his OBR windfall to assist with the budget and the much-anticipated freezing of the personal allowance has changed to bring forward the planned changes to the personal allowance, now increasing from 1 April 2019 alongside the higher rate tax banding, a year earlier than anticipated.
“32 million people will be delighted, but it must be remembered that the level at which the additional 45% rate of tax kicks in has not changed since it was introduced by Alastair Darling in 2010 and a perhaps unforeseen consequence is that fiscal drag is increasingly hitting higher earners in the economy.”
On the proposed new digital services tax and IR35, James Hender commented:
“This was billed as a Budget to propel the UK’s economy into a dynamic future and there were progressive announcements to support innovation and entrepreneurism. At the same time, the hotly anticipated digital services tax may run counter to the rhetoric of supporting innovation – while the new tax, arguably a stop gap measure while the OECD rolls out its own programme, will be welcome in many quarters, the Chancellor will remain wary about alienating global technology businesses which provided significant investment and employment opportunities in the UK.
“Similarly, the extension of IR35 reforms into the private sector was expected but will need to strike a careful balance between protecting employment rights whilst providing the flexibility required to drive productivity in a dynamic economy.”
On the extension of the SDLT cut to first time buyers of shared ownership property up to £500,000, James Hender commented:
“It is very unusual for Chancellors to make tax changes retrospective and first-time buyers of certain shared ownership properties will be delighted to have an early Christmas present from HMRC by being able to claim back stamp duty which they paid over the last year.”
On cutting lettings relief on homes where the owner is not in a shared occupancy, Lucy Brennan, partner in the Private Wealth Group at Saffery Champness commented:
“The cutting of CGT reliefs on peoples’ home sound innocuous, but it will hit people who have to be out of their properties before they sell them. This is particularly the case when people have to move for work, but are unable to sell their homes within nine months.
“Many will want to review their CGT position on their properties where these have been previously lived in. Lettings relief will be restricted to where the owner is in occupation. This generous relief has frequently assisted those selling their main home after a period of letting to pay limited tax on any gain outside of the PPR period. In a surprise move, the PPR period is also reducing. Having been entitled to the last 36 months of a properties’ ownership, this has already reduced to 18 months and Mr Hammond is now taking this a step further and reducing it to 9 months.”
On Entrepreneurs’ Relief being retained but reformed, Lucy Brennan commented:
“Entrepreneurs’ Relief will now have a two-year time limit before the reduced 10% CGT will apply. Anyone thinking about selling their business in the next few years should seek advice to ensure that they comply with the new rules.”
“When considering Entrepreneurs’ Relief on the sale of shares in a company there have always been plenty of ways to trip up, with people usually considering they will get the relief as long as they hold over 5% of the shares. In looking at anti-avoidance this will need to be reviewed further in the future, as not only will HMRC consider the share of voting rights, but this has now been extended to shares of distributable profits and net asset value.”
On the introduction of a minimum requirement of 30% recycled material on all plastic goods, James Hender commented:
“The Chancellor has gone green by effectively introducing a minimum requirement of 30% recycled material in all plastic goods. Could it be that The Blue Planet has created a green Chancellor?!”
On the increase in AIA, Lucy Brennan commented:
“The increase in AIA will support larger companies, rather than small businesses, but starts to show the increasing support for entrepreneurs and evidence that UK Plc is open for business and investment.”