The Chancellor of the Exchequer, Philip Hammond delivered the first Budget on a Monday since 1962. During the most crucial Budget speech in recent memory, Fiscal Phil pulled rabbits from top hats, worried about pot holes and as the opposition cried “off with his head” we had the makings of a real Mad Hatters Tea Party.
Here are some of the 2018 Budget announcements which will effect individuals and small business owners.
Personal Tax Allowance to Rise to £12,500 One Year Earlier than originally announced.
The Personal Tax Allowance is set for all individuals in the UK and was due to increase to £12,500 in April 2020, however the Chancellor announced that the increase would apply one year earlier from 6th April 2019.The increase in the threshold after which higher rates of tax are paid was also brought forward by one year and is increased to £50,000 from next April. This increase applies to non-savings and non-dividend income in England, Wales and Northern Ireland and to Savings and Dividend income throughout the UK.
The power to set the rates of tax in Scotland was devolved to the Scottish Parliament and the corresponding Scottish’s rates will be announced in the Scottish Budget on Wednesday 12th December.
Tax Status of 6 New Devolved Benefits
The Scottish Government is introducing some new social security benefits and have defined these as tax exempt benefits.They are:
• Young Carer Grant
• Best Start Grant
• Funeral Expense Assistance
• Discretionary Housing Payments
• Carer’s Allowance Supplement
Gift Aid Small Donations Scheme limit increased to £30 in line with the contactless payments limits.
The Annual Subscription limit for Junior ISA’s and Child Trust Funds for 2019/20 will be £4,368
Capital Gains Tax
Selling your company after budget day will add a few new hoops to jump through. Shareholders of small companies may have different rights depending on the type of shares they hold. Sometimes they have rights to a lesser or greater proportion of the profits, likewise the distribution of the assets should the company be wound up. However, when selling a business or retiring, the shareholder wants to be certain they can benefit from a low tax rate on the money they receive, after all they have built up the business and the profits of the company have already been subject to corporation tax.
The low rate of tax is called Entrepreneur’s Relief(ER). ER reduces the Capital Gains Tax (CGT) due
to a rate of 10% on a maximum of £10 million of lifetime gains and was designed to encourage those with a business mind to build businesses, retaining funds in the business to make them grow rather than stripping all of the profits from the business. From budget day 29th October 2018 the shareholders who can claim this lower tax rate are restricted to those who have rights to a minimum
• 5% of the company’s distributable profits
• 5% of its assets available for distribution on a winding up
From budget day the time frame for which the shares must be held has also increased from one year to two years.
Capital Gains Tax – Principle Private Residence (PPR) and Letting Relief
Capital Gains Tax (CGT) is due when an asset is sold at a profit. However, it is generally the case when an individual sells a property which, throughout their period of ownership, has been their only or main residence the gain in value is exempt from CGT. Sometimes for personal or investment reasons a property, which has been an only or main residence is retained and not sold, possibly let to tenants. In these circumstances CGT is due on the proportion of the profit or gain which relates to the period when the property was a let property but it is not due on the period of time the property was the only or main residence.
The final period of ownership is always deemed to be part of the PPR calculation to allow for a period of time when the property might be empty, for example, whilst arranging for a sale. This period has been falling from its original 36 months, down to 18 months and Budget 2018 announced that from April 2020 the period will be further reduced to 9 months.
The 2018 Budget has also drastically reformed a long standing relief known as Letting Relief. Letting Relief is used to reduce the gain chargeable when a property had been both an individual’s main residence and also a let property during the period of ownership. Budget 2018 announced that from April 2020 Lettings Relief will no longer be available except in the exceptional circumstances where the owner is in shared occupancy with a tenant.
If you would like to discuss any of the topics we’ve outlined then please get in touch with us – we’d be more than happy to answer any questions that you may have. Email firstname.lastname@example.org
To be continued.......