Most commentators would agree that the 2018 budget contains little in the way of surprises with the biggest changes coming in personal taxation especially in relation to individual tax rates. This is summary of the key measures and how they will affect personal finances
- The basic personal allowance is to rise to £12,500 and the higher rate tax threshold rising to £50,000. Both increases were to take place in April 2020 but have been brought forward and will now be effective from April 2019.
- From April 2019 the rules for those who are eligible for entrepreneurs’ tax relief are being amended. To qualify for entrepreneurs’ relief a person must own a business for two years before selling it, an increase of one year from its previous level. The second change is effective immediately and affects share ownership. In future, entrepreneurs’ relief can only be claimed by a person owning shares entitling them to 5% of distributable profits AND net assets of the business. (Previously, owners of a business asset had only to own 5% of the businesses share capital and have 5% voting rights to qualify).
- Stamp duty land tax relief for first-time buyers, who are buying property under a shared ownership scheme, has been extended. The relief is due for property purchases which do not exceed £500,000. There has been no change in the stamp duty rates for first-time buyers of other property.
- The Chancellor announced that the Government’s flagship Help to Buy equity loan scheme would be extended by two years from April 2021 – it will end in March 2023. The Chancellor also took the opportunity to amend the rules to the scheme:
- The new scheme will be limited to first-time buyers;
- Entry into the scheme will be regulated by applying house price caps on a region by region basis i.e. the Help to Buy equity loan scheme can only be used where the market value of the house being purchased does not breach the average regional pricing scale;
- The maximum limit (or value) is set at 1.5 times the current regional average house prices forecast for first-time buyers and is limited further to £600,000 for property purchases in London.
- A new stamp duty charge for non-UK residents is also been planned. The proposal is that non-UK residents buying residential property in England and Northern Ireland will face an additional surcharge of 1%.
- The rules on principle private residence relief have been tightened. Currently, landlords who have at some point lived in the property they rent out gain relief from capital gains tax when they sell the property (lettings relief on buy-to-let properties). The size of the relief is based on the period of time the landlord occupied the property, with an additional exemption given for the final 18 months of ownership.
From April 2020 the relief will only apply where the owner of the property is sharing occupancy of the home with the tenant – in all other cases the relief is to be scrapped. Where the letting relief criteria are met the final period of exemption will be reduced to nine months.
- The adult ISA annual subscription limit will remain unchanged at £20,000 but the Junior ISA limit will be increased to £4,368 effective from April 2019.
- By the end of March 2019 the minimum amount you can save in Premium Bonds will be cut from £100 to £25. The restriction on who can invest in a premium bond on behalf of a child will be lifted. Currently, the parent and grandparent can invest on behalf of a child but lifting the restriction will open the door to other family members, and those associated with the child, to invest and then gift the premium bond to the child.
- The government has announced a further crackdown on private sector contractors who cannot show they are genuinely self-employed – this is an extension of a measure already introduced in the public sector. The onus will be put on companies to determine whether the contractors they have hired are genuinely self-employed. Many commentators see this as the start to aligning the self-employed and employee tax regimes
- The annual and lifetime time savings limits for pensions remained untouched with the Lifetime Allowance, as promised, increasing roughly in line with CPI to £1,055,000 from next April.
- No other changes were made to pensions
- A further £650 million has been made available to Local Authorities to fund social care in England from April 2019. This commitment is in light of the ongoing discussion around the funding of long-term social care, the proposals of which are currently being discussed in a Green Paper – no final date of its publication has yet been given.
For full details of the Budget proposals and changes to all tax rates go to https://www.gov.uk/government/topical-events/budget-2018