Budget 2018 was not quite the non-entity that many predicted, with some surprising new changes made, some expected changes not coming to fruition, and the Chancellor announcing some changes that have been on the ‘tax wish-list’ for quite a while.
An example of the latter being the proposed increased Annual Investment Allowance for capital allowances purposes, which will temporarily increase from £200,000 to £1m on 1 January 2019 for 2 years. This rise should have occurred many years ago, and my only gripe now is that this is only a temporary measure. To increase productivity by incentivising the private sector to spend, surely this needs to stay at the £1m limit for the long term! An observation I would make is that the significant jump to £1m (a 400% increase!) and the temporary nature don’t sit well – the considerable increase appears to show that it is felt that £200,000 is far too low (which is entirely correct), however, why then only have this significant jump for 2 years? I’m hoping that sense prevails before 31 December 2020 and that the new limit is set at a more favourable level to continue to encourage investment, albeit reduced from £1m.
Another welcome surprise was the announcement of a new capital allowance for commercial buildings. The ‘Structures and Buildings Allowance’ (SBA) will apply to the construction costs of commercial buildings, where contracts for physical construction works are entered into on or after 29 October 2018. The SBA will be 2% of the construction costs written-off over a 50 year period. However, this is not as positive as it seems, given that, to compensate for the new SBA, the writing-down-allowance for the ‘special-rate’ pool expenditure is being reduced from 8% to 6% from April 2019.
Keeping with property, one big surprise for me was the further reduction in the final exempt period for capital gains Principal Private Residence (PPR) Relief (known colloquially as “main residence relief”) from 18 months to 9 months, and the effective removal of Lettings Relief (that forms a part of PPR relief) from 6 April 2020. Whilst there will be a consultation on this proposed change, the consultation process has been a consultation in name only over the past few years. Consequently, I’d work on the basis that this change will be introduced in the form proposed. This will mean that those wishing to sell property where it has been let and been their principal residence in the past will incur higher capital gains tax liabilities from 6 April 2020. The loss of Lettings Relief (worth a maximum of £11,200 in tax for a higher-rate taxpayer and £7,200 for a basic-rate taxpayer) will be a significant hit and yet another blow to landlords.
Business rates will be cut by 1/3 for retail properties with a rateable value below £51,000 for 2 years. As with the increase to the Annual Investment Allowance above, why only temporary? This surely needs to be a permanent fixture, and arguably more than 1/3rd for it to assist the struggling high street. Hopefully, this will be addressed when business rates are next revalued.
A more general measure was the increase in the income tax Personal Allowance to £12,500, and the higher-rate income tax threshold to £50,000 from 6 April 2019. The Tory manifesto had pledged to reach these levels by 2020, and despite speculation that the Chancellor might choose to freeze the thresholds and delay the rise until after 2020, he has instead decided to bring this forward by a year. While only a matter of timing, it is welcomed. The hope will surely be that this mitigates the continuing low rates of wage growth.
The well-documented off-payroll working rules for the private sector (targeting employers contracting with limited companies for services provided by individuals akin to employment) will now only come in on 6 April 2020 (it had been expected to be effective from 6 April 2019), and it has been announced that it will only apply to ‘medium and large’ employers.
A further employment tax announcement was the announcement that the employers’ NIC Employment Allowance would only be available to those employers with an NIC liability of less than £100,000 in the previous tax year from 6 April 2020.
It was announced that the current VAT registration threshold (£85,000) will remain until at least April 2022, when consideration of the issues with the ‘cliff edge’ nature of the threshold will be considered again (this has been the topic of recent consultations).
For employee shareholders, there have been significant changes to the qualifying conditions for capital gains Entrepreneurs’ Relief. In addition to the current conditions, the employee shareholder must be entitled to 5% of the distributable profits, and 5% of the capital assets. Just as significant, if not more so, was the extension of the qualifying period from 1 year to 2 years.
As ever, other positive news is the expected changes that weren’t included – the big one for me being that inheritance tax reliefs were not mentioned (which had been widely rumoured to be curtailed), no change to tax relief on pension contributions, and no increase in the rate of capital gains tax. However, “Don’t count your chickens!”
Talking of that, depending upon how negotiations go over the coming months (and/or the occurrence of a General Election!), the Chancellor indicated that we may yet have another Budget in the spring (I know…a Budget in the spring….who’d think such a thing!).
Our full Budget Summary is available to read and download here.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.