David Hill, Partner, Private Client at Mogers Drewett, comments on the private client aspects of the Chancellor’s Autumn 2018 budget
Tax-free earnings rise
The big move, despite calls for the Chancellor to abandon the Conservative manifesto commitment, was the raising of the basic and higher rate tax thresholds. The tax free threshold for earnings was raised to £12,500 whilst the higher rate was lifted to £50,000. Higher rate tax payers will be about £500 better off as a result. These rises will take effect from April 2019 – one year ahead of the Conservative’s previous pledge. On the surface, the change seems very generous, however these thresholds will be frozen in 2020/21 and will only rise in line with inflation from April 2021.
Pension tax breaks safe for now
Despite widespread speculation that the Chancellor may have a reduction in annual pension allowances in his sights, Mr Hammond resisted the temptation to lower them. They will remain at £40,000, where many commentators had been penciling in a possible reduction to £30,000. Nor did the Chancellor touch the lifetime allowance, which remains at just over £1 million. There was further good news when the Chancellor opted to leave pension tax relief alone. Higher-rate pension tax relief remains unchanged – for now. However, the Chancellor described the current system as “eye-wateringly expensive”, surely indicating that this is something he – or a successor – will return to in the future. The respite is likely to be only temporary.
Gifting premium bonds easier, but no ISA limit rise for tax-free savers
The Chancellor announced a relaxation of the rules around gifting premium bonds to children – allowing anyone to do so, whereas before it could only be done through the nominated parent, grandparent or guardian. The parent or guardian will still look after the bonds on the child’s behalf, however, until they turn 16. The minimum investment has also been lowered from £100 to £25. The Junior ISA investment limit will be raised for the new financial year from 6 April 2019 to £4,368 which is a rise in line with the Consumer Price Index (CPI). However, for the third year running the investment limits for adult ISAs has been held, meaning it will remain at £20,000. This is in fact the first time since the financial crisis that the ISA limit has been kept unchanged for three consecutive years.
Help to buy extended another two years
There was qualified good news for prospective purchasers on the Help to Buy scheme when it was extended for a further two years, from 2021 to 2023 – but only for first time buyers. In addition, from 2021 new maximum price caps will be introduced, significantly reducing the maximum value of properties that first time buyers can buy through the scheme in most regions outside London. In the capital, the upper limit will remain at £600,000 but in the North East it will be as low as £186,100.
The small business budget – friendly moves for entrepreneurs and business rates cuts
There was a range of good news for small businesses and entrepreneurs, with Mike Cherry from the Federation of Small Businesses describing the Budget as “the most small business-friendly Budget this Chancellor has delivered”. The Chancellor kept Entrepreneurs’ Relief in place, which provides a lower rate of 10% tax on capital gains when selling all or part of the company instead of 20%, although the qualifying period was extended from one year to two. He also left the VAT threshold unchanged at £85,000 despite much speculation that he may lower it and so bring more small businesses into the VAT regime. There was good news for small retailers too – with shops with a rateable value of £51,000 or less set to see a reduction of one third in the business rates they will pay for the next two years. In a further boost for small enterprises, the Chancellor announced that the apprenticeship fee small businesses must pay when they take on an apprentice will be halved, from 10% to 5%, as part of a £695 million package to support apprenticeships.
Buy-to-let worries fail to materialise
Landlords and owners of buy-to-let properties are likely to be feeling somewhat relieved after yesterday’s Budget. There had been speculation that the Chancellor might target various buy-to-let reliefs to generate funds towards paying for giveaways elsewhere – but this did not materialise. Some had feared the Chancellor might reduce the duration of private residence relief considerably and perhaps scrap lettings relief altogether. One change that Mr Hammond did announce, however, was that from April 2020 lettings relief will only apply where the owner is in shared occupancy with the tenant(s). In other words, it must be the owner’s main residence. The Government will hold a consultation on this change at a date to be announced.