Topical Updates

Budget 2018 – The end to austerity takes shape
November 2018

Delivered on a Monday afternoon instead of the traditional Wednesday, between key meetings in the Brexit negotiations and amidst turbulent times in Westminster, you could be forgiven for losing track of the 2018 Budget.

Despite the disruption, the Chancellor’s statement brought more focus to the pledged ‘end to austerity’, along with details of an extra £20 billion in funding for the NHS.  Whilst many people were expecting tax rises, Mr Hammond’s job was made easier in the lead up to the Budget by updated forecasts from the Office for Budget Responsibility showing borrowing was £13 billion lower than expected.

One of the most high-profile announcements by Mr Hammond is a new digital services tax – dubbed the ‘Amazon tax’ by the media.  Targeted at large companies, the tax has been set at 2% of revenue derived from UK users through use of things such as search engines, social media platforms and online marketplaces.

Coupled with this tax, and with the UK high street reeling from various high-profile company failures, the Chancellor also announced a cut in business rates for smaller retail businesses.  From April 2019 retail property with a rateable value below £51,000 will see their bills cut by one third.  Local newspapers will receive a further £1,500 discount and even public lavatories will have a new 100% relief.

Not content with appealing to small businesses and the high-street, Mr Hammond also sought to win favour with larger-than-expected increases to the personal allowance and higher rate threshold.  Originally a part of the Conservative manifesto, the increases have been brought forward by a year – from April 2019 the personal allowance will increase to £12,500 and the higher rate threshold will be raised to £50,000.

Of course, while the Budget has been delivered, voices from all corners, including Mr Hammond himself, have warned that another Budget could soon be necessary.  Whether it’s a result of the Brexit negotiations or after a General Election, we may see changes to the country’s finances in the near future.

In the meantime, there could well be many popular aspects of this Budget.  Across the changes to income tax, the politically timely digital services tax, the ninth consecutive year of frozen fuel duties and various spending announcements across roads, high-street environments and tree-planting, it seems clear Mr Hammond wants his end of austerity to be believed.

Please click here to view our budget summary.

  • This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice as at (29/10/2018). You are recommended to seek competent professional advice before taking any action.
  • Tax and Estate planning services are not regulated by the Financial Conduct Authority.
  • The value of an investment and the income from it could go down as well as up. You may not get back what you invest.

 

Forward planning for the Budget
October 2018

With the next Budget approaching at the end of October, it may be worth reviewing your finances now.

More than the usual changes to tax rates are expected this time, after various consultations were started in the spring.  Draft legislation was published in early July which contained no major surprises, but consultations underway could result in some major announcements.  For example, the Office of Tax Simplification has been examining the options for simplifying the administration of inheritance tax (IHT), with its report due in the autumn.

One possibility is that elements of IHT business relief will be ‘simplified’ by being abolished, which could restrict, or even end, the growing use of IHT-relieved AIM-based share portfolios in estate planning.

Potential tax increases

In June, the Prime Minister announced increased NHS funding of £20.5 billion by 2023, saying this will mean  taxpayers will contribute a bit more in a fair and balanced way.  According to the Institute for Fiscal Studies, adding one penny to all the main rates of income tax, or 1% to VAT, raises around £6 billion a year, so the ’bit more’ could imply noticeable tax rises.

We will have to wait until the Budget to see how the Chancellor expects to raise the necessary revenue.  In the meantime, in early July the Treasury was reportedly investigating a 25% flat rate of relief for pension contributions, which could net an extra £4 billion for the Exchequer.

Please get in touch if you would like to discuss your options before any announcements.

  • The Financial Conduct Authority does not regulate tax advice and some types of estate planning.
  • Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
  • Tax laws can change.
  • The content of this publication is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. It does not provide personal advice based on an assessment of your own circumstances. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.
     

Trick or treat? The Chancellor calls the 2018 Budget for late October
October 2018

The 2018 Budget has been set for Monday 29 October, setting a deadline for speculation and proposals.   Mr Hammond, however, has indicated that he won’t end the long spell of austerity measures, despite improving public finances. 

Proposals raised by think tanks and professional bodies include overhauls of income and inheritance tax, ‘pension tax relief simplification’, and scrapping entrepreneur’s relief to help fund NHS costs.

But every proposal is overshadowed by Brexit, and the uncertainty of what will happen on 29 March 2019.

What’s coming?

 Alongside measures announced in the draft Finance Bill, the following areas could see change:

The NHS – The NHS Foundations’ ten-year plan may not be published in time for the Budget, so the Chancellor could be limited to general spending priorities.  Mr Hammond said a digital services tax or ‘Google tax’ is coming – with or without European allies.   This income could be dedicated to the NHS.

Inheritance tax (IHT) – The IHT review from the Office of Tax Simplification (OTS) may be published ahead of the Budget.   It was tasked to look at making IHT less complex, focusing especially on trusts, administrative issues and business and agricultural property reliefs.   Calls for a complete overhaul in favour of a ‘lifetime receipts’, ‘property’ or ‘wealth tax’ seem unlikely from a Conservative government.

Stamp duty – After introducing new reliefs for first-time buyers, focus has shifted to ‘last time’ buyers, with calls to incentivise older homeowners to downsize. The Prime Minister has also indicated that an additional 1-3% duty could be levied on foreign property buyers to help control rising house prices and tackle homelessness.

Business – Business rates are due to increase next year, with business groups calling for action.   The Chancellor’s conference speech outlined changes to the apprenticeship levy to help build training and skills for SMEs, and appeared to boost commitment to the business sector.

The environment – We are likely to see a dedicated plastics packaging tax.  Initial reports indicated the costs would be borne by manufacturers rather than consumers.   However, we may also see an increase to the plastic bag levy from 5p to 10p and roll out to all shops, not just firms with over 250 employees.

In this most turbulent of times, facing pressure from many groups, perhaps the only clear thing is that Mr Hammond has an unusually tricky balancing act to pull off.

The content of this publication is for information purposes and should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy.  It does not provide personal advice based on an assessment of your own circumstances.  Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice.

Is a flat rate scheme coming to pension tax relief?
September 2018

The prospect of a flat rate of tax relief on pension contributions has resurfaced in the national press.

The cost of pension relief has been chipped back in recent years, mainly by reducing the annual allowance.  However, a report in The Times in early July suggested the Treasury is looking at flat rate tax relief, which would give the same rate of tax relief on contributions, regardless of personal income tax rates.  The Times reported a flat rate of 25% is being considered, meaning a gross pension contribution of £100 would require a net outlay of £75 instead if the current £80.

The 25% rate would be an effective tax cut for the majority of pension contributors, who pay basic rate tax, but would potentially save the Exchequer about £4 billion a year.  It is estimated that a flat rate of 28% would cost the Treasury the same as today’s mix of 20%, 40% and 45% reliefs.

It is hardly surprising that the Treasury is re-examining pension tax relief, given it is looking for an extra £20.5 billion for NHS funding.  Tax relief on pension contributions cost the Exchequer £38.6 billion in 2016/17 according to HMRC’s latest estimate, as well as over £16.2 billion of national insurance contribution (NIC) relief on employer contributions.

It remains to be seen if such a change will be announced in the Budget.  Currently, the politics of such a move seem between difficult and impossible, and the Chancellor will remember the backlash he faced when he attempted to raise NICs.  A proposal to end higher rate tax relief could meet with similar resistance, especially as it would likely coincide with the next rise in automatic enrolment pension contributions.  However, a recent Treasury Select Committee report recommended the Government give “serious consideration” to the introduction of flat rate relief.

In the longer term, a switch away from full tax relief is beginning to look inevitable.  George Osborne, Mr Hammond’s predecessor, almost made the change in 2016.  Mr Hammond, or his successor, may finally do so, if only for the extra revenue.  In the meantime, if you are a higher or additional rate taxpayer, maximising pension contributions is a strategy to consider.

  • The value of your investment can go down as well as up and you may not get back the full amount you invested.
  • Past performance is not a reliable indicator of future performance.
  • The value of tax reliefs depends on your individual circumstances.
  • Tax laws can change.
  • The Financial Conduct Authority does not regulate tax advice.

Residential letting to get more difficult
September 2018

Draft legislation released in July contains more bad news for those renting out residential property.

The Finance Bill 2018/19 draft legislation published just before the summer holidays has confirmed the following measures:

  • From 6 April 2019, the rules for rent-a-room relief (which exempts up to £7,500 a year of income from tax) will be revised.  A new ‘shared occupancy test’ means the relief will no longer apply if the entire property is rented out for the tenancy period.  This will mean an end to going on holiday and letting out your home tax-free during sporting events, such as Wimbledon.
  • From 1 March 2019, the window for filing and paying stamp duty in England will shrink to just 14 days from the date of sale.  Past experience suggests Scotland and Wales will follow suit.
  • From 6 April 2020, for residential property sales giving rise to taxable gains, a tax return must be made and the capital gains tax (CGT) paid within 30 days of the sale.  Any adjustments would then need to be made via a self-assessment return.

Over the past few years, the Treasury has turned its attention to the private rented sector.  As such, landlords must already comply with several new rules, including: the wear-and-tear allowance for furnished lettings being replaced with a tighter expenditure-based regime; the phased replacement of full income tax relief on finance interest costs with a basic rate tax credit; a 3% stamp duty surcharge for second residential properties; and an 8% capital gains tax surcharge on residential property.

The number of new buy-to-let sales is dropping, and some landlords are looking to sell following the changes.  A consultation paper published by the government in July proposes minimum tenancy agreement terms of three years which may stimulate fresh landlord sales before the new CGT rule bites.

If you are thinking of moving in or out of this investment area, do talk to us about your options before taking any action.

  • The value of your investment can go down as well as up and you may not get back the full amount you invested.
  • Past performance is not a reliable indicator of future performance.
  • The value of tax reliefs depends on your individual circumstances.
  • Tax laws can change.
  • The Financial Conduct Authority does not regulate tax advice.