Chancellor Philip Hammond was in bullish mood when he delivered his second Autumn Budget recently – exactly five months before Britain is due to leave the European Union, writes Pearson May partner Nick Oliver FCA FIoD
The Chancellor asserted that the era of austerity was ‘finally coming to an end’ after a ‘long, hard journey’. However, he maintained that UK debt remains too high and highlighted the importance of continuing to reduce debt and borrowing.
Citing the latest economic forecasts from the Office for Budget Responsibility (OBR), Mr Hammond revealed that the UK growth forecast has been upgraded from 1.3% to 1.6% for 2019, while public borrowing in 2018/19 is set to be £11.6bn lower than previously forecast at the time of the Spring Statement.
With the Brexit negotiations ongoing at the time of the Budget, the Chancellor announced an additional £500m of departmental funding for Brexit preparations. He also raised the possibility of upgrading the 2019 Spring Statement to a ‘full fiscal event’ if no deal was agreed, i.e. another Budget!
BUSINESSES
Key announcements for businesses included a two-year cut in business rates for small retail properties in England from April 2019, worth £900m, together with a £675m fund to help rejuvenate high streets. In an attempt to encourage businesses to invest and help them grow their operations, the Annual Investment Allowance (which enables businesses to claim 100% tax relief on qualifying purchases of plant and equipment, machinery, fixtures etc) will increase from £200,000 to £1m for a period of two years, commencing on January 1, 2019.
There were rumours before the Budget that the VAT registration threshold would be reduced, but the Chancellor committed to hold it at £85,000 until April 2022. This will provide some certainty to businesses which need to know whether and when they must comply with the Making Tax Digital (MTD) for VAT rules (as referred to in our article from a couple of months ago).
As widely anticipated, the Chancellor confirmed plans to introduce a new tax on the UK revenues of digital services companies from 2020, applying to those with global sales of more than £500m per annum. However, plans for a tax on takeaway coffee cups were overruled in favour of a new tax on plastic packaging containing less than 30% recycled material.
INDIVIDUALS
Meanwhile, individual taxpayers are set to benefit a year earlier than planned from an increase in the income tax personal allowance, which will rise by a further £650 in April 2019 to £12,500. This will provide taxpayers on the basic rate (20%) with an income tax saving of £130 per year. The higher rate threshold will also increase from £46,350 to £50,000. From 2021, both thresholds will rise in line with CPI inflation.
It was also announced that there are plans for changes to the Capital Gains Tax (CGT) rules which apply when an individual sells their only or main home. When you sell your only or main home, you expect any gain you make to be free of CGT. But that CGT exemption only applies if you have occupied the property as your main home for the entire period of your ownership. However, if you move out of your home before it is sold, the tax rules allow up to 18 months of the final ownership period to be CGT exempt even if you were not living in the property in that period.
HMRC is proposing to cut this final exempt period to nine months for properties sold from April 6, 2020. This would follow a similar cut from 36 months to the current 18 months which took place in April 2014. Furthermore, under the current rules, if you let out a property which had been your main home at some point, you can claim lettings relief to reduce the taxable capital gain by up to £40,000 (£80,000 for a married couple). Lettings relief is capped at the amount of relief due for the time (usually a different period) in which you occupied the property as your main home but could nevertheless result in quite a significant saving. HMRC wants to restrict lettings relief to cover only periods in which the owner occupied the property while part of it was let. Homeowners who move and then let out their former home will be hit by this change in CGT relief, which is due to take effect for properties sold on or after April 6, 2020.
There were also announcements that the stamp duty relief for first-time homebuyers will be extended to shared equity purchases of up to £500,000, while the lifetime allowance for pension savings will increase to £1,055,000.
There is more information on all of the key points announced in the Budget in our 2018 Autumn Budget Report which you can download from our website. Alternatively, email mail@pearsonmay.co.uk and we would be happy to send you a copy.
The above is for general guidance only and no action should be taken without obtaining specific advice.
