The Chancellor of the Exchequer today announced his final post-Brexit budget. From a personal tax perspective, the Budget contained a number of small changes to existing rules and confirmation of policies already announced but not much new of major significance.
As expected, the key announcement in terms of business taxation is the introduction of a Digital Services Tax on very large businesses and partial relief from business rates at the other end of the scale.
The key issues are summarised as follows:
Rates and allowances
- Against popular expectation, the Chancellor did not freeze the personal income tax allowance and higher rate threshold. Instead he raised these amounts to £12,500 and £50,000 respectively, one year ahead of the Conservative Party election manifesto pledge to reach these levels by April 2020.
- As previously announced, the Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... annual exemption for 2019/20 will be £12,000.
- The Chancellor announced no changes to the rules or rates on pension contributions. The lifetime allowance for pension savings will increase in line with CPI to £1,055,000, as previously announced.
- He also confirmed that the rate of Corporation Tax will be reduced to 17% from April 2020.
Property tax changes
There were a number of relatively small changes to the taxation of UK real estate. Further detail was published on the already announced plans to change the taxation of non-residents owning, or disposing of, UK real estate.
- Lettings Relief (which is currently available where a person rents out a property which was formerly their Principal Private Residence) is to change substantially. From 6 April 2020, the relief will only be available if the owner is in joint occupancy with the tenant. In reality, we expect this will render the relief largely irrelevant and the next stage may well be complete abolition.
- In a further change to the taxation of Principal Private Residences (“PPRs”), it is proposed that the final period of deemed ownership will be reduced from 18 months to 9 months.
The Government have announced they will consult on both these PPR changes before the rules are introduced.
- It had been expected that the Chancellor may announce an additional Stamp Duty Land Tax (“SDLT”) surcharge of up to 3% on foreign purchasers of UK residential property. This was not brought in but the Government will consult on introducing a 1% surcharge on such buyers.
- As previously announced, non-UK resident companies which have UK property related income will, from April 2020 become chargeable under the Corporation Tax regime. They are currently chargeable to income tax. Draft legislation was published today and clients affected by this change will want to take advice on the impact of the changes to regime applicable to them.
- Again, as previously announced non-residents (including companies) making direct or indirect disposals of UK real property will be subject to UK taxation on capital gains from April 2019. Currently capital gains tax only applies to direct disposals of UK residential property. Further information was provided on this but no significant changes to the expected rules have been made.
Entrepreneurs relief changes
- Two changes have been made to the operation of Entrepreneurs’ Relief (“ER”). Whilst these both restrict the ability to qualify for the relief, it will come as a relief (no pun intended) that ER has not been entirely abolished.
- The Chancellor announced that he will extend the period during which the shareholder must meet the qualifying criteria for ER from 12 months to 24. This measure will be introduced with effect from 6 April 2019.
- He did not announce (but it was in the briefing documents published shortly after the statement) that he was also introducing two new qualifying criteria in relation to the disposal of shares. When selling shares, they must be shares in the taxpayers “personal company”. In addition to the existing requirement to hold 5% of the share capital and 5% of the voting rights, the taxpayer must also now have been beneficially entitled to 5% of the company’s distributable profits and 5% of assets available for distribution to shareholders in a winding up. This change has been introduced with effect from today and the detailed proposals contain several potential pitfalls. It is likely that a large number of shareholders, including those in businesses funded by private equity, will no longer qualify for this important tax relief. Structures that include loans from shareholders or preference shares are, in particular, exposed to unusual outcomes in respect of the relief. The new tests need to have been met for the last 12 months for share sales before 5 April 2019 and so this is effectively retrospective regulation.
Corporate and business taxes
- As was widely anticipated, from April 2020 a Digital Services Tax of 2% on the revenues of large social media platforms, search engines etc. will be introduced in relation the revenues they receive which are linked to UK users. The intention is that it targets only “established tech giants” and not the tech start-up industry.
- With a view to encouraging investment by businesses, a number of enhanced or new Capital Allowances reliefs were announced with the Annual Investment Allowance temporarily being increased to £1m for the calendar years 2019 and 2020 and a new allowance being available for investment in new non-residential structures and buildings.
- As expected, business rates have been amended to cut the charges applicable in small business premises but no relief will be available for the likes of the big high street retailers who have had such a torrid time in recent months and years.
- As widely expected, the “off-payroll working rules” otherwise known as IR35 will be rolled out to apply to private sector “employers”. Currently the rules only apply where the public sector is the one of the contracting parties and they require that the “employer” is responsible for assessing the application of the rules, rather than the contractor and their personal service company. However, in acknowledgement of the problems faced in correctly implementing the rules, the Chancellor has announced that the rollout to the private sector will be delayed until April 2020 and will only apply where medium and large businesses are deemed the “employing” party.
If you would like to discuss how the Budget may affect you, please contact us.