View or download our full Budget Report here
What with the usual round of carefully-orchestrated press leaks and the media’s obsession with the political fall-out from Brexit, many observers felt that Chancellor Philip Hammond would not have many surprises left in his locker for his Budget Day speech on Monday, October 29.
It turns out we were all wrong – a fact that clearly delighted Mr Hammond when he made his opening remarks.
Admittedly, he had a stroke of good fortune through the Office of Budget Responsibility’s (OBR’s) upward revision of growth forecasts for the UK economy, which helped him to make good the Government’s pledge to bring the age of austerity to an end. Top of the list was his announcement that increased Personal Allowances and the higher rate tax threshold would be implemented a year earlier than originally planned.
The NHS is to be given a £20.5bn budget increase over the next five years, but there were other commitments to increase public spending to help schools, hospitals and the country’s beleaguered high streets. He even set aside money to help with potholes and public toilets.
A new Digital Services Tax will be pitched at global tech giants while, on the home front, a cut in Business Rates will be warmly welcomed by independent shops, cafes and pubs – the latter further helped by a freeze on beer, cider and spirit duties. Fuel duty is also frozen for the ninth consecutive year.
Industry was given a boost by the decision to increase investments allowances from £200k to £1m and SMEs will welcome the decision to freeze the VAT threshold for a further two years. Entrepreneurs, too, will welcome the Chancellor’s decision NOT to scrap “entrepreneurs’ relief”.
On a personal level, millions of low-paid workers will benefit from a 4.9% rise in the National Living Wage and first-time house buyers will be exempt from Stamp Duty up to £500k for those purchasing shared equity properties.
But there are hidden thorns, too. For example, as long expected, controversial public sector IR35 reforms will be extended into the private sector, while entrepreneurs and lettings reliefs are being tightened up.
To understand how announcements made in the Budget on 29 October 2018 will affect your financial situation, read below or download our full Budget Report here.
Business announcements
Corporation tax
The main rate of corporation tax remains at 19% for 2019/20.
The intention to cut the rate of corporation tax to 17% in 2020/21 was reiterated.
Annual investment allowance
The annual investment allowance will be temporarily increased from £200,000 to £1m for a two-year period from 1 January 2019.
Transitional rules may apply to the allowance where the chargeable period spans either 1 January 2019 or 1 January 2021.
Employment allowance
The employment allowance, which provides many employers with relief of up to £3,000 per tax year from their employers' national insurance contributions (NICs) bill, will be restricted to only those employers who had a NICs bill below £100,000 in the previous tax year.
For more information read our full Budget Report here
Personal announcements
Personal allowance
The personal allowance increases from £11,850 to £12,500 from 6 April 2019. The allowance will also remain at this level for the 2020/21 tax year.
Basic-rate band
The basic-rate limit increases from £34,500 to £37,500 from 6 April 2019.
Consequently, this will increase the higher-rate tax threshold from £46,350 to £50,000. This limit will remain in place for the 2020/21 tax year.
Starting-rate band
The starting rate band for savings will remain at £5,000 for the 2019/20 tax year.
Future increases to the personal allowance and basic-rate band
From 2021/22, the personal allowance and the basic-rate limit will be indexed with the Consumer Price Index (CPI).
ISAs
The adult ISA annual subscription limit remains at £20,000 for 2019/20.
The junior ISA annual subscription limit and the child trust fund annual subscription limit both increase from £4,260 to £4,368 with effect from 6 April 2019.
Lifetime allowance for pensions
The lifetime allowance for pension savings increases for 2019/20 from £1.030 million to £1.055m.
Capital gains tax
Capital gains tax annual allowance
The capital gains tax (CGT) annual exempt amount for individuals rises from £11,700 to £12,000 from 6 April 2019.
Entrepreneurs’ relief
The Government has increased the minimum period to which certain conditions must be met in order for entrepreneurs’ relief (ER) to be available from one year to two years. This measure will take effect for disposals made on or after 6 April 2019.
The one-year qualifying period will continue to apply for business disposals made on or after 6 April 2019, provided that trade had ceased before 29 October 2018.
The Government also announced two new tests to the definition of a ‘personal company’ in relation to the qualifying criteria for ER to be available.
For disposals on or after 29 October 2018, all claimants must possess a 5% interest in both the distributable profits and the net assets of the company in order to be eligible to claim.
These tests must be met for the specified period for relief to be obtainable.
Inheritance tax
Residence nil-rate band
The residence nil-rate band (RNRB) increases from £125,000 to £150,000 from 6 April 2019 and to £175,000 from 6 April 2020.
For estates with a net value of more than £2m, the withdrawal rate is tapered by £1 for every £2 over the £2m threshold.
Any unused RNRB can be transferred to a surviving spouse or civil partner.
Minor technical changes relating to the downsizing provisions and the definition of ‘inherited’ for RNRB purposes have also been made.
For more information read our full Budget Report here
VAT announcements
VAT-registration threshold frozen until 2022
The VAT-registration threshold was frozen at £85,000 until 1 April 2020 in the last Budget, and the Chancellor extended that until 1 April 2022.
HMRC had consulted on the VAT-registration threshold following suggestions from the Office of Tax Simplification.
It is thought in some quarters that the registration threshold is a barrier to the growth of business and so this issue is likely to be revisited in subsequent Budgets.
The Chancellor did state that he would be "looking at the possibility of introducing a smoothing mechanism once the terms of the EU exit are clear".
Until then the current VAT-registration threshold will remain as follows:
- A business must be VAT-registered when its taxable turnover in the last 12 months has exceeded £85,000 or is expected to exceed £85,000 in the next 30 days alone.
- A business may be able to avoid registration if the above limit has been exceeded, but it does not expect to exceed £83,000 in the next 12 months.
- A business may apply for deregistration if it can satisfy HMRC that its taxable turnover will fall below £83,000 in the next 12 months.
For more information read our full Budget Report here
Duties announcements
The following duties remain unchanged:
- fuel duty
- beer, and still and lower-strength cider
- spirits
- short-haul air passenger duty.
The following duties will increase by inflation (as measured by RPI) with effect from 1 February 2019:
- wine
- high-strength cider.
Stamp duty land tax for first-time buyers
The relief for first-time buyers will be extended to qualifying shared-ownership properties whether or not they elect to pay SDLT on the market value of the whole property when they purchase their first share.
The relief applies retrospectively from 22 November 2017, so a refund may be due for those who have paid SDLT after 22 November 2017.
Relief will be applied to the first share purchased where the market value of the shared-ownership property is £500,000 or less.
For more information read our full Budget Report here
Other announcements
Charity taxation
From April 2019, the Government will introduce measures to reduce administrative burdens on charities. These include:
- An increase from £5,000 to £8,000 in the upper limit for trading charities can carry out without incurring a tax liability where turnover is under £20,000 and from £50,000 to £80,000 where turnover exceeds £200,000.
- Allowing charity shops using the retail gift aid scheme to send letters to donors every three years when their goods raise less than £20 a year, rather than every tax year.
- An increase to the individual donation limit under the gift aid small donations scheme to £30, which applies to small collections where it is impractical to obtain a gift aid declaration.
Tax abuse and insolvency
Following royal assent of Finance Bill 2019/20, directors and other persons involved in tax avoidance, evasion or any act that is deemed unethical will be jointly and severally liable for company tax liabilities, where there is a risk the company may deliberately enter insolvency.
For more information read our full Budget Report here