Autumn Budget Report – 2018
Overview
- Philip Hammond presented his Autumn Budget on Monday 29th October 2018.
- The Budget was slightly early this year so as to avoid clashing with the possible final Brexit negotiations in November.
- Philip Hammond claimed that “austerity is coming to an end” as he took advantage of better-than-expected tax revenues to promise a £30bn boost in public spending by 2024. He did however warn that if the Brexit talks collapse he would have to hold an emergency budget in the spring.
- The chancellor announced that public spending would increase by 1.2% a year over five years from 2020, which is the largest ‘fiscal loosening’ (extra spending by the government not matched by tax rises) since 2010.
- Public spending will rise by £30bn by 2023-24, a significant stimulus to be spent on the NHS and on raising the amount people can earn before they start paying tax. That is in sharp contrast to the five year ‘austerity’ plan announced in 2010, which saw cuts of 3% a year, and in 2015, which included cuts of 1.3% a year.
Economic Outlook
- The Office for Budget Responsibility (OBR) has increased the growth forecast for the UK to 1.6% in 2019 up from the 1.3% forecast in March.
- In his statement, Philip Hammond stated the OBR had predicted resilient growth in the UK economy throughout the next five years, including 1.4% in 2020 and 2021, 1.5% in 2022 and 1.6% in 2023. He also highlighted figures showing higher employment, with the OBR predicting 800,000 more jobs by 2022, which he said meant more than 4.1m net new jobs had been created since 2010.
- Repeating the phrase that austerity is coming to an end in the UK, Phillip Hammond added that with regular pay growth of 3.1%, the strongest level in almost a decade, and with inflation to average 2% in 2019, the OBR is forecasting sustained real wage growth in each of the next five years.
- Government borrowing in 2018 is predicted to be £11.6bn lower than in the Spring Statement forecast in March 2018, and the UK is no longer borrowing in order to fund current spending.
- Philip Hammond quoted figures suggesting national debt in the UK had peaked in 2016/17 and is expected to fall every year of the forecast period, which means the economy will have met both of the Chancellor’s two fiscal rules three years early by 2021.
Main Budget Tax Proposals
- A Conservative manifesto pledge to increase the tax-free personal allowance to £12,500 for basic-rate tax payers and to £50,000 for higher-rate tax payers was brought forward a year to April 2019, and Phillip Hammond said it would increase in line with inflation after that.
- The introduction of a special tax on Amazon, Facebook and other digital giants in April 2020 raising £400m a year.
- A £20.5billion (real terms) increase for the NHS over the next five years.
- The NHS 10-Year Plan will include a new mental health crisis service.
- Private Finance Initiative and PFI2 schemes to be abolished.
- Business rate bills cut by one-third for the next two years for small retailers.
- Fuel duty and beer and cider duty frozen.
- £2.7bn extra funding for Universal Credit transition.
Brexit-specific Points
- An additional £500m for Brexit preparations in government departments.
- This comes on top of £2.2bn already announced, and £1.5bn announced at the 2018 Spring Statement.
- Phillip Hammond says he is prepared to upgrade the Spring Statement next year to a “full fiscal event” if necessary.
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Sandle Nash Limited Comment |
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This was Philip Hammond’s third Budget and his last before we find out what is in store for the final deal on Brexit. The Chancellor also left the door open for a Spring Budget in case the Brexit outcome is a ‘no deal’. We already knew his top two headlines:
….so the highlights of the day turned out to be the increases in the Personal Allowance and Higher Rate tax bracket being brought forward to April 2019 and funding to fix potholes! The improvement in the economic picture is welcome news, given the uncertainty surrounding Brexit negotiations. Stronger GDP growth is likely to see inflation move higher as consumer spending increases, which could lead to interest rates rising faster than some might have expected. However, the wild card remains the outcome of the Brexit negotiations and whether we experience an orderly or disorderly exit. |
1. Personal Tax
The Personal Allowance for 2019/20
The Budget confirmed that the Personal Allowance will increase from £11,850 to £12,500 in the 2019/20 tax year.
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Sandle Nash Limited Comment |
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The biggest rabbit out the hat in the Budget was a tax cut for more than 30 million workers. Philip Hammond claimed the move would save basic rate taxpayers £130 a year and higher earners £860. However, the devil is in the detail, and changes to National Insurance Contributions (see below) buried in the small print, and not actually mentioned in the speech, mean that the tax savings for higher earners are not as attractive as they first seem. As detailed earlier, the early fulfilment of the Conservative’s manifesto pledge to increase the tax-free Personal Allowance to £12,500 and the higher rate threshold to £50,000 is welcome news and is squarely aimed at offsetting any fallout from Brexit. |
Tax Bands and Rates for 2019/20
The budget confirmed that there will be an increase in the limit at which the basic rate applies, to £37,500 for 2019/20. The higher rate threshold therefore rises to £50,000 for 2019/20 for those entitled to the full Personal Allowance. The additional rate of tax of 45% remains payable on taxable income above £150,000.
Tax Bands and Rates – Dividends
The current tax free dividend allowance of £2,000 is to remain at this level for the 2019/20 tax year.
Tax Bands and Rates – National Insurance Contributions (NIC)
Class 1 NICs (for employed individuals) are currently paid at a rate of 12% on earnings between £8,424 and £46,350, with a rate of 2% then being paid on earnings above this. In the 2019/2020 tax year the band that the 12% rate applies to will change to earnings between £8,632 and £50,024.
Class 2 NICs (for self-employed individuals) are currently a fixed amount of £153.40 per year when earnings exceed £6,205 per year, and Class 4 NICs are then paid at a rate of 9% on earnings between £8,424 and £36,350, with earnings above this subject to a rate of 2%. In the 2019/2020 tax year the threshold before Class 2 NICs are paid will increase to £6,365, and the earnings band for Class 4 NICs will increase to £8,632 – £50,000.
Individual Savings Accounts (ISA)
The overall ISA savings limit was increased to £20,000 in the 2017/18 tax year, and has remained at this figure since (having been confirmed as £20,000 for the coming 2019/20 tax year).
Junior ISAs & Child Trust Funds
The annual subscription limit for Junior ISAs and Child Trust Funds for 2019/20 will be increased in line with the Consumer Prices Index (CPI) to £4,368.
Personal Pensions – The Money Purchase Annual Allowance (MPAA)
The Money Purchase Annual Allowance (MPAA) was introduced by the Taxation of Pensions Act 2014 on the 6th April 2015. It has been designed to discourage individuals who seek to abuse the new flexible pension rules in order to avoid tax and potentially, National Insurance Contributions. It does so by introducing a lower alternative Annual Allowance where such flexibility has been accessed.
This lower limit is currently £4,000 per annum, and it has been confirmed that this will remain unchanged for the 2019/20 tax year.
2. Business Tax
Corporation Tax Rates
The main rate of corporation tax (applicable to Limited Companies) will remain at 19% for the Financial Year beginning 1st April 2019.
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Sandle Nash Limited Comment |
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There was speculation that the proposed Corporation Tax cut to 17% from 1st April 2020 could be scrapped, but this proposal remains in place. |
3. Capital taxes
Capital Gains Tax (CGT) – Annual Exemption
The CGT annual exemption will increase to £12,000 for 2019/20.
Private Residence Relief – Lettings Relief
Currently, the relief can be claimed by individuals who let out a property that is, or has in the past been, their main residence. From April 2020, the government will reform lettings relief so that it is only available to individuals in shared occupancy with a tenant.
Private Residence Relief – Final Period Exemption
Currently, the exemption means that people do not have to pay CGT on gains made in the final 18 months of ownership. From April 2020, the exemption will be reduced to 9 months. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.
Entrepreneurs’ Relief
The minimum period for which the relevant qualifying conditions must be met in order to claim Entrepreneurs’ Relief is being increased from 1 year to 2 years.
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Sandle Nash Limited Comment |
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Entrepreneurs’ Relief is a 10% Capital Gains Tax rate on the first £10m of lifetime gains from passing on or selling a business, and despite calls from some quarters to abolish the relief allowance, the chancellor instead decided to revise the provision to increase the minimum holding period. The increased timeframe is unlikely to affect many, as most entrepreneurs recognise that it takes more than two years to establish a successful business that they will sell. |
Taxing Gains Made by Non-residents on UK Immovable Property
Taxation of gains accruing to non-UK residents has been extended to include gains on disposals of interests in non-residential UK property. The measure also taxes non-UK residents’ gains on interests in property rich UK entities (for example, selling shares in a company that derives 75% or more of its value from UK land). All non-UK resident persons, whether liable to Capital Gains Tax or Corporation Tax, will be taxable on gains on disposals of interests in any type of UK land for disposal on or after 6th April 2019.
4. Other Matters
State Pension Increase
In the 2016 Autumn Statement the Government confirmed that it would maintain the “Triple Lock” on State Pensions until 2020. This increases the state pension each April by the higher of;
- The growth in average earnings
- The Consumer Price Index (CPI)
- 5%.
The measures for the “Triple Lock” are taken in October each year, and this October the growth in earnings (2.6%) was the highest of the three figures, and so this is the figure used as the basis of the increase in the amount of State Pension payable from April 2019. Consequently, the full basic State Pension will rise from £125.95 to £129.20 per week and the ‘single-tier’ New State Pension is to increase from £164.35 to £168.60 per week.
Pension Lifetime Allowance
It has been confirmed that the Lifetime Allowance (LTA) for pensions savings will rise in line with CPI as at the preceding September. This means that the LTA for 2019/20 will be £1,055,000.
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Sandle Nash Limited Comment |
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In his Budget of March 2015 the then Chancellor George Osborne announced a reduction in the LTA to £1,000.000. He also declared that from 2018 the LTA would be index-linked to the Consumer Price Index (CPI) so should increase gradually over time, and which is reflected in the above increase. For those pension savers who may have LTA issues, they may be better off waiting until after 6th April 2019 to vest their pension benefits (thereby taking advantage of the higher limit). |
Stamp Duty for First Time Buyers & Shared Ownership Properties
Stamp Duty Land Tax (SDLT) first-time buyers relief will be extended to purchasers of qualifying shared ownership properties who do not elect to pay SDLT on the market value of the whole property when they purchase their first share.
Relief will be applied to the first share purchased, where the market value of the shared ownership property is £500,000 or less.
First time buyers will pay no SDLT where they are paying £300,000 or less for the first share. Those paying between £300,000 and £500,000 for their first share will pay SDLT at 5% on the amount in excess of £300,000, a reduction of up to £5,000 compared to the amount of SDLT they would have previously paid. The relief will also apply to any SDLT due on the rental payments.
First time buyers purchasing a shared ownership property whose market value is more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates, in line with the treatment for other first time buyers.
The relief will also apply to shared ownership property buyers who have already paid SDLT on the initial equity stake and rental amount since the introduction of the relief on 22nd November 2017. They will have a year to make a backdated claim for the relief. This measure will be effective from 29th October 2018.
The End of ‘Help to Buy’
The door will close on the popular “Help to Buy” home ownership scheme in 2023, bringing an end to a flagship loan programme that critics say has helped to push up UK house prices. Although the Government has confirmed that it will extend the scheme past the original end date of 2021 to 2023 it will restrict it to first-time buyers purchasing newly built homes during that time.
From 2021, there will also be new regional price caps brought in, drastically reducing the maximum value of homes that can be bought with the scheme’s help.
The End of ‘PFIs’ (sort of)
Almost 30 years after the Private Finance Initiative (PFI) was first used as a means to fund the building of hospitals, schools and roads, the chancellor has called time on the financial instrument. It will continue to honour existing contracts and will also continue to use private finance in different forms to continue to fund infrastructure projects.
Tech Firms / ‘Tech Tax’
The big US tech companies, including Amazon, Apple, Facebook and Netflix, are facing a new ‘digital services tax’ by 2020 in a move the chancellor said was necessary to address concerns about the “fairness of the tax system”. The new measure is expected to raise more than £400m annually for the exchequer, and is makes Britain the first major economy to implement a “tech tax”.
Premium Bond Changes
More family and friends will be able to buy Premium Bonds for children. At present, only parents and grandparents can buy Premium Bonds for children aged under 16 from National Savings and Investments (NS&I), although no date for this change was actually announced.
The change is coupled with a drop in the minimum investment from £100 to £25 (with the provision to be in place by the end of March next year). A new app will also be launched next year, in addition to the current prize checker app.
5. Consultations
Taxation of Trusts
This Budget reconfirmed there will be a consultation on the taxation of trusts to make their taxation simple, fairer and more transparent which should be published later this year.
Non-residents & Stamp Duty Land Tax (SDLT)
A consultation will be issued in January 2019, on a possible SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Pension Dashboards
The Government is supporting the launch of Pension Dashboards; innovative tools that will allow an individual to see their pension pots, including their State Pension, in one place. The Department for Work and Pensions (DWP) will consult later this year on the detailed design for industry-led Pension Dashboards.
Child Trust Funds
The Government will publish a Consultation in 2019 on draft Regulations for maturing Child Trust Fund Accounts.
Inheritance Tax
It is also worth mentioning that in April this year the independent Office of Tax Simplification launched a wide-ranging consultation intended to let the general public and professional advisers have their say about whether the current Inheritance Tax system is fit for purpose. The consultation was expected to report back in time for the Autumn Budget, but no mention of it was made. We wait to see if Philip Hammond’s desire to make the system fairer and less complex ends up removing valuable aspects of tax planning commonly used to mitigate Inheritance Tax.
5. Other Points
Probate Fees
The government is to press ahead with plans to substantially increase the cost to bereaved families of settling the estates of deceased relatives. Currently, most people only pay a flat fee of £215 (or £155 via a solicitor) for a court order giving executors the legal authority to administer the assets in an estate. This will be replaced by a sliding scale of fees linked to an estate’s value, ranging from £250 to a £6,000 maximum.
The maximum fee to be charged will represent no more than 0.5% of the value of an estate, and following the wide criticism of changes proposed last year, the level at which fees are payable is rising from £5,000 to £50,000. The Government estimates that 25,000 estates will not pay anything at all while 80% of estates will pay no more than £750.
This summary is issued for the information of our clients. It provides an overview of the main proposals announced by the Chancellor of the Exchequer in his Autumn 2018 Budget Statement, and no action should be taken without consulting the detailed legislation or seeking professional advice.
Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this summary can be accepted by Sandle Nash Limited.
The Budget proposals may be subject to amendment in a Finance Act.
Clients should contact us before taking any action as a result of the contents of this summary.
Appendix – New Tax Rates 2019/20
| Tax Year 2018 to 2019 | Tax year 2019 to 2020 | |
| Personal Taxation | ||
| Income Tax Bands | ||
| Basic | £1 – £34,500 | £1 – £37,500 |
| Higher | £34,501 – £150,000 | £37,501 – £150,000 |
| Additional | Over £150,000 | Over £150,000 |
| Income Tax Rates (Main rate) | ||
| Basic | 20% | 20% |
| Higher | 40% | 40% |
| Additional | 45% | 45% |
| Starting rates for savings income | 0% | 0% |
| Income Tax Rates (Dividends) | ||
| Basic | 7.5% | 7.5% |
| Higher | 32.5% | 32.5% |
| Additional | 38.1% | 38.1% |
| Income Tax allowances | ||
| Personal allowance | £11,850 | £12,500 |
| Starting rate for savings income | £5,000 | £5,000 |
| Dividend allowance | £5,000 | £5,000 |
| Personal savings allowance | £1,000 (BR) £500 (HR) £0 (AR) | £1,000 (BR) £500 (HR) £0 (AR) |
| Capital Gains Tax Rates | ||
| Main rates for individuals | 10% / 20% | 10% / 20% |
| Residential property (not otherwise eligible for relief) | 18% / 28% | 18% / 28% |
| Capital Gains Tax Allowances | ||
| Annual exempt amount | £11,700 | £12,000 |
| Inheritance Tax | ||
| Nil Rate Band | £325,000 | £325,000 |
| Residential Nil Rate Band (RNRB) | £125,000 | £150,000 |
| Rate (Estates) | 40% | 40% |
| Reduced Rate (10% of estate to charity) | 36% | 36% |
| Rate (CLTs) | 20% | 20% |
| Trusts and Estates | ||
| Income Tax Bands | ||
| Standard rate band | Up to £1,000 | Up to £1,000 |
| Income Tax Rates | ||
| Trust rate | 45% | 45% |
| Dividend trust rate | 38.1% | 38.1% |
| Capital Gains Tax Allowances | ||
| Annual exempt amount | Up to £5,850 | Up to £6,00 |
| Capital Gains Tax Rates | ||
| Main rate | 20% | 20% |
| Residential property (not otherwise eligible for relief) | 28% | 28% |
| Corporate | ||
| Corporation tax | 19% | 19% |