The Chancellor of the Exchequer, the Right Honourable Philip Hammond delivered his 2018 Budget yesterday. It was relatively low-key given that a number of the announcements had already been made and much of the Budget related to increased spending with less focus on taxation. Overall, and given the wider political environment, it represented a cautious but optimistic outlook with the significant caveat that the on-going negotiations around a Brexit deal would have the most telling impact on the economy and therefore taxation.
The key headlines in the private client space are as follows:
Entrepreneurs Relief (ER) for Capital Gains Tax
Although there were calls from some quarters for the Chancellor to abolish ER entirely, the Chancellor announced it would remain, though with some changes:
- The period in which the required conditions have to be met will be extended from one year to two years
- An economic substance test will be introduced, adding two new tests to the definition of a ‘personal company’
Mr Hammond announced that the Government’s commitment to raise the personal allowance to £12,500 (currently £11,850); and the higher rate (40%) taxpayers’ threshold to £50,000 (currently £46,351) would take effect from April 2019, one year earlier than originally promised.
No changes were announced with respect to additional rate taxpayers or the tapered removal of the personal allowance for those with an adjusted net income in excess of £100,000.
A consultation will be launched in January 2019 on a Stamp Duty Land Tax (SDLT) surcharge of 1% for non-residents purchasing residential property in England. This fits with the continued theme of raising the cost of buying residential property for non-residents.
SDLT relief for first time buyers purchasing properties for less than £500,000 would be extended to those who purchase shared ownership properties (the measure is also retrospective).
The Private Residence Relief (PRR) (historically referred to as ‘PPR’) rules would be tightened from April 2020:
- The last 9 months of ownership would be characterised as deemed occupation (rather than the last 18 months)
- Lettings relief will only be available if the owner is in shared occupancy with the tenant.
Avoidance, evasion and ‘unfair outcomes’
- There was a reaffirmation of the Government’s commitments to tackle tax avoidance, evasion, aggressive tax planning and non-compliance. There were a number of changes announced in this area but in the private client space, ER abuse was specifically stated as a target.
Off-payroll working ‘IR35’
In the private sector responsibility for operating the ‘off-payroll working’ rules will move from the individual workers to the organisation (or agency) engaging the worker. In order to give more time to prepare for these changes they have been pushed back to April 2020. It was also announced that small organisations will be exempt from the changes.
The lifetime allowance for pensions will be increased to £1,055,000 from 5 April 2019.
No changes were announced to remove higher and additional rate income tax relief on pension contributions, which had been predicted by some commentators in the run-up to the Budget.
If you would like to learn more or should have any questions please do not hesitate to contact any of the Tax team.
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