Budget Tax Changes

Budget 2018:

Before every Budget the newspapers publish articles containing their tax predictions.

I have always said that these are almost always completely alarmist and should be ignored. This year was no different. Here Nick Braun of TaxCafé gives his detailed analysis.

Just like last year there was:

• No big cut in the VAT registration threshold
• No cut in pension tax relief
• No cut to the dividend tax allowance
• No freezing of the personal allowance or higher-rate threshold
• No suspension of corporation tax cuts
• No further attack on the self employed

There was also no major fresh assault on landlords. Heaven knows the big cut in mortgage tax relief is enough to last a lifetime. But there were some property tax changes, including some unwelcome changes to main residence relief.

The main tax changes include:

Income Tax

This year the tax-free personal allowance is £11,850 and you start paying 40% tax when your income exceeds £46,350. From April 2019 the personal allowance will increase to £12,500 and the higher-rate threshold will increase to £50,000 – a year ahead of schedule.

These thresholds will, however, remain at these levels in 2020/21 and then increase with inflation each year.

Remember, if you live in Scotland you will not benefit from this tax cut because the Scottish Government sets its own income tax rates for most types of income (but not interest and dividends).

Capital Gains Tax Reliefs

From April 2020 private lettings relief (which exempts up to £40,000 per person of property capital gains when you rent out a former home) will be changed so that it is only available where the owner lives in the property with the tenant.

The final period exemption will be reduced from 18 months to just 9 months.

These changes will not increase the capital gains tax payable by landlords who sell regular buy-to-let properties but they will affect those who rent out their old homes.

The Government will consult on the changes so we will have to wait for more details.

Rent a Room Relief

This relief provides a £7,500 tax exemption if you rent out a room in your main residence. Following consultation the Government will not now include legislation for a “shared occupancy test� to prevent landlords benefiting from the relief when they let out whole properties.

Stamp Duty Land Tax

Remember this no longer applies in Scotland or Wales, just England and Northern Ireland.

From Budget day, first-time buyers relief has been extended so that all qualifying shared ownership property purchasers can benefit. This measure is being backdated to 22 November 2017 so that those who have not previously claimed will be able to receive a refund.

A consultation will be published in January next year on a 1% stamp duty surcharge to be paid by non-residents.

VAT

There were rumours before the Budget that the VAT registration threshold would be drastically reduced. This would have hammered many small businesses. The threshold will stay at £85,000 until April 2022. This means inflation will drag more business owners into the VAT system but it could have been a whole lot worse. Further changes may lie ahead once the Brexit dust has settled.

Corporation Tax

The corporation tax rate will fall from 19% to 17% in April 2020. Legislation has already been passed and will not be repealed.

Annual Investment Allowance

Capital spending by businesses on things like equipment, vans and certain assets within commercial property qualify for the annual investment allowance. This provides an immediate tax deduction for spending of up to £200,000.

The allowance will be increased to £1 million for two years from 1 January 2019 to 31 December 2020. Irrelevant to most small businesses because most spend nowhere near £200,000 per year anyway.

New Structures and Buildings Allowance

New non-residential properties will be eligible for a new 2% capital allowance.

Capital Allowances

Some assets, such as cars with high CO2 emissions, qualify for a “writing down allowance� of just 8% per year. From April 2019 this special rate will be reduced to just 6%.

Entrepreneurs Relief

If you sell your business you may be able to pay just 10% capital gains tax thanks to this relief. There are a number of qualifying criteria that must be met for at least one year before the disposal takes place. From 6 April 2019 the minimum period will be extended to two years.

Digital Services Tax

The Government is planning to introduce a 2% tax on the revenues of certain big “search engines, social media platforms and online marketplaces�. Couldn’t they have just been more open and said Google, Facebook and Amazon?

I wonder what that means for the many thousands of small UK businesses that sell their wares on Amazon. Will they be the ones who end up paying the tax in the form of higher charges?

Business Rates

The Government says it will cut business rates bills by one third for retail properties with a rateable value below £51,000 for two years from April 2019.

The Government will also consult on the criteria under which self-catering properties and holiday lets become chargeable to business rates rather than council tax.

Off Payroll Working in the Private Sector

Since April 2017, where a public sector body engages a worker providing services through their own limited company, the public sector body is responsible for determining whether the IR35 rules should apply and for paying the right tax.

From April 2020 this unpopular measure will be extended to private sector employers, except small firms.

National Insurance Employment Allowance

This allowance gives employers a £3,000 per year reduction in their employer’s national insurance bills. There were fears before the Budget that the allowance would be abolished or cut back.

From April 2020 the allowance will only be given to employers whose national insurance bill was less than £100,000 in their previous tax year. Fortunately, therefore, most small businesses will be unaffected and will continue to enjoy this tax break.

Class 2 National Insurance for the Self Employed

This currently costs the self employed around £153 per year. It was going to be abolished next year but the Government has decided to keep it for now.

Trusts Consultation

A consultation on the tax treatment of trust will be published “to make the taxation of trusts simpler, fairer and more transparent�. That’s code for they want to tax trusts more heavily.

Pensions Lifetime Allowance

This is the amount you can save in pensions before punitive tax charges apply. The lifetime allowance will be increased in line with inflation to £1,055,000 in 2019/20.

ISAs

No increase in the £20,000 annual subscription limit. The Junior ISA limit will increase with inflation to £4,368.

Nick Braun is the founder of Tax Cafe which publishes tax guides for landlords including How to Save Property Tax and Using a Property Company to Save Tax

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