At a glance
- First time buyers of residential property outside Scotland will pay no stamp duty land tax on the first £300,000 of the purchase price for a home, provided its value does not exceed £500,000.
- The personal allowance will rise to £11,850 and the higher rate tax threshold for the UK (excluding non-savings, non-dividend income in Scotland) will rise to £46,350 for 2018/19.
- The pension lifetime allowance will be increased from £1 million to £1.03 million from April 2018. There will be no change to the annual allowance.
- Venture capital trusts*, enterprise investment schemes* and seed enterprise investment schemes* will be required to focus more on companies where there is a real investment risk.
- The diesel supplement for company cars will be increased from 3% to 4% from April 2018.
- Online marketplaces will become jointly and severally liable for unpaid VAT of UK traders as well as overseas traders.
- There will be several changes to business rates, notably dealing with the ‘staircase tax’ and introducing valuations every three years.
THE VALUE OF PENSIONS AND INVESTMENTS CAN FALL AS WELL AS RISE AND YOU CAN GET BACK LESS THAN YOU INVESTED.
*THESE INVEST IN ASSETS THAT ARE HIGH RISK AND/OR DIFFICULT TO SELL. THEY ARE ONLY APPROPRIATE FOR EXPERIENCED AND SOPHISTICATED INVESTORS WHO UNDERSTAND THE RISKS.
TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.
INCOME TAX
Rates of tax 2018/19
(i) The limit for the starting rate for savings income remains at £5,000 and the rate of tax on income in this band is held at zero.
(ii) The basic rate limit increases to £34,500 so that the higher rate tax threshold [ie. the basic rate limit (£34,500) plus the basic personal allowance (£11,850) becomes £46,350.
(iii) The basic rate of tax remains at 20% and will apply to taxable income in the band £1 to £34,500. Dividends in excess of the £2,000 dividend allowance will be taxed at 7.5% if they fall within the basic rate tax band. Taxable income in excess of £34,500 will be taxed at 40% (32.5% for dividends) up to the threshold of £150,000 when the additional rate of tax applies – see (iv) below.
(iv) The additional rate of tax (which applies to taxable income in excess of £150,000) is 45% (38.1% for dividends).
(v) Trustees of discretionary trusts are subject to income tax at 45% (38.1% on dividend income) on income above their standard rate band (normally £1,000).
(vi) For Scotland, the 2018/19 tax bands and tax rates, which cover only non-dividend and non-savings income, are not yet known. Other income is subject to the UK-wide rates shown above.
Personal allowances 2018/19
(i) The personal allowance increases from £11,500 to £11,850. Where an individual’s adjusted net income exceeds £100,000, the level of the basic personal allowance will be reduced by £1 for each £2 over £100,000 until it reaches zero. This means that the basic personal allowance will reduce to zero where adjusted net income is £123,700 or more.
(ii) The married couple’s allowance (MCA), which is only available provided at least one spouse was born before 6 April 1935, is increased to £8,695. There is a reduction in the MCA of £1 for every £2 additional income in excess of the total income threshold which is increased to £28,900. The MCA will not reduce below £3,360 (the “minimum amount”) increased from £3,260.
(iii) Relief in respect of the MCA and maintenance payments continues to be given as a tax reduction at the rate of 10%.
(iv) Spouses and registered civil partners will be entitled to transfer £1,185 of their personal allowance (called the “marriage allowance”) to their spouse or registered civil partner provided that after the transfer neither spouse pays tax at above the basic rate. For more on the marriage allowance see below.
The Marriage Allowance
The marriage allowance allows a taxpayer to transfer 10% of their standard personal allowance (£1,185 for 2018/19) to a spouse/civil partner.
Currently, no transfer of the personal allowance is permitted on behalf of a deceased spouse/civil partner, or from a surviving spouse/civil partner to a deceased spouse/civil partner.
From 29 November 2017 a spouse/civil partner of a deceased spouse/civil partner can claim up to 10% of the deceased’s personal allowance, with claims being backdated by up to 4 years.
Planning
For all couples, as a bare minimum, both personal allowances, starting/basic rate tax bands and the dividend and personal savings allowances should be used to the full. This is particularly beneficial where income can be legitimately shifted from a higher or additional rate taxpaying spouse to a non, starting or basic rate taxpaying spouse. For those with cash and investments this will usually be facilitated by an unconditional transfer of income-producing assets from the higher tax paying spouse to the other.
Any such transfers would usually be capital gains tax and inheritance tax neutral as transfers between spouses living together are treated as transfers on a no gain/ no loss basis for capital gains tax purposes and transfers between UK domiciled spouses (living together or not) are exempt from inheritance tax without limit.
Those able to control the amount of dividend income they receive, such as shareholding directors of private companies, should consider paying themselves up to £5,000 in dividends in tax year 2017/18, especially as the dividend allowance will reduce to £2,000 from April 2018.
CAPITAL GAINS TAX
Capital gains tax exemption
The capital gains tax annual exemption will increase from £11,300 in 2017/18 to £11,700 in 2018/19.
The annual exemption available to trustees will increase from £5,650 in 2017/18 to £5,850 in 2018/19 – although this “per trust” limit is diluted where the settlor has created more than one trust subject to a minimum of £1,170 per trust.
The rates of capital gains remain unchanged.
TRUST TAXATION
The Chancellor has announced that the government will publish a consultation in 2018 on how to make the taxation of trusts simpler, fairer and more transparent. No details of this proposed consultation are yet available.
The increase in the annual CGT exemption affects trustees.
The annual CGT exemption available to trustees will increase from £5,650 to £5,850 from 6 April 2018 – although this limit will be diluted according to the number of trusts created by the same settlor but will never be less than £1,170.
There were no further announcements in relation to offshore trusts since the draft Finance Bill 2017-18 clauses were published on 13 September 2017, introducing further anti-avoidance provisions to come into effect from 6 April 2018.
Doubtless all trust practitioners will look forward to the proposed consultation as we would all welcome a simpler and fairer taxation of trusts.
DIVIDEND TAXATION FOR INVESTORS
The dividend allowance will decrease from £5,000 to £2,000 from April 2018.
VCT, EIS, SEIS, SITR AND BR INVESTMENTS
Venture Capital Trusts (VCT), Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS), Social Impact Tax Relief (SITR) and Business Relief for Inheritance Tax (BR – formerly known as Business Property Relief)
The Patient Capital Review was initiated here, with the remit to identify barriers to access to long-term finance for growing firms.
HM Treasury has also published the response to the Patient Capital Review “Financing Growth in Innovative Firms” which can be found here.
Measures introduced in the Budget to come into effect in April 2018 in line with state aid rules:
The annual investment limit for Enterprise Investment Scheme (EIS) investors will be doubled from £1 million to £2 million, provided that any amount above £1 million is invested in knowledge-intensive companies.
The annual investment limit for knowledge-intensive firms will be doubled from £5 million to £10 million through the EIS and by Venture Capital Trusts (VCTs).
Greater flexibility will be provided for knowledge-intensive companies over how the age limit is applied for when a company must receive its first investment through the schemes. Knowledge-intensive companies will be able to choose whether to use the current test of the date of first commercial sale or the point at which turnover reached £200,000 to determine when the 10-year period for EIS (7 years for VCT) has begun.
Risk to Capital Provision
Measures are to be introduced to impose a new condition to the EIS, SEIS and VCT rules to exclude tax-motivated investments, where the tax relief provides most of the return for an investor with limited risk to the original investment (that is, preserving an investor’s capital). The condition depends on taking a ‘reasonable’ view as to whether an investment has been structured to provide a low risk return for investors.
Knowledge Intensive EIS
A new knowledge-intensive EIS approved fund structure will be consulted upon, with further incentives provided to attract investment.
Business Relief for Inheritance Tax
There were no announcements relating to Business Relief (BR), although HM Treasury published research on IHT reliefs “The influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances” which can be found here.
The research notes that “Most testators and beneficiaries were aware of the basic principles of IHT (such as the threshold) and of spouse exemption, but few accurately relayed the details of these. Few were aware of APR/BR.” The research did not highlight any major issues or concerns with regards aggressive planning.
Other measures
New £2.5 billion Investment Fund incubated in the British Business Bank with the intention to float or sell once it has established a sufficient track record. By co-investing with the private sector, a total of £7.5 billion of investment will be supported.
Investing in a series of private sector fund of funds of scale. The British Business Bank will seed the first wave of investment with up to £500m, unlocking double its investment in private capital. Up to three waves will be launched, attracting a total of up to a total of £4 billion of investment.
Backing first-time and emerging fund managers through the British Business Bank’s established Enterprise Capital Fund programme, supporting at least £1.5 billion of new investment.
Backing overseas investment in UK venture capital through the Department for International Trade, expected to drive £1 billion of investment.
Launching a National Security Strategic Investment Fund of up to £85m to invest in advanced technologies that contribute to our national security mission.
Planning
There were wide ranging suggestions that the Venture Capital Scheme market would adversely impacted in the Budget. There have been no negative changes to tax reliefs or holding periods, nor will there be any new exclusions for certain sectors.
The EIS Association has consequently heralded this as a vote of confidence in the sector.
The introduction of the Risk to Capital measures will however have an impact on the planning approach to alternatives as the risk profile increases. Expectation of returns and timescales will become harder to predict which will make concepts like the rolling EIS / VCT less appealing.
For investors with a suitable risk profile and who can maximise the tax reliefs both EIS and VCTs should remain a solution worth considering as part of an holistic financial plan.
*THESE INVEST IN ASSETS THAT ARE HIGH RISK AND/OR DIFFICULT TO SELL. THEY ARE ONLY APPROPRIATE FOR EXPERIENCED AND SOPHISTICATED INVESTORS WHO UNDERSTAND THE RISKS.
The value of the investment and the income they produce can go down as well as up. You may not get back as much as you put in.
PENSIONS
A welcomed sigh of relief could be heard from the pensions industry as the Autumn Statement was devoid of any pension changes.
The rates for the full single tier state pension have been confirmed for 2018/19 as £164.35pw (£4.80 increase) and the basic state pension will increase under the triple lock guarantee by 3% to £125.97.
The Autumn Statement was also used to confirm that the master trust tax registration legislation will be contained in the Finance Bill 2017-18 and remains unchanged from the draft legislation issued in September 2017.
PROPERTY TAX
Stamp Duty Land Tax (SDLT)
First Time Buyers Relief
In an unexpected move to help first time buyers onto the property ladder, the Chancellor has announced that first time buyers paying £300,000 or less for a single residential property will pay no SDLT on transactions with an effective date (usually the date of completion) on or after 22 November 2017.
In addition, first time buyers paying between £300,000 and £500,000 will pay SDLT at 5% only on such amount of the purchase price that exceeds £300,000 – representing a reduction of £5,000 compared to the amount of SDLT that would have previously been paid.
A first time buyer is defined as an individual who has never owned an interest in a residential property in the United Kingdom or anywhere else in the world (so, if they have inherited property they will not be treated as a first time buyer even if they have never bought) and who intends to occupy the property as their main residence. Where there are joint or multiple purchasers, the relief – which must be claimed in the SDLT return – will only be available if both or all of them satisfy the criteria.
First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.
The relief will apply to purchases in England, Wales and Northern Ireland. In Wales, it will apply until
Land Transactions Tax replaces SDLT for transactions in Wales from 1 April 2018.
HMRC have published draft legislation and guidance on the new relief, with the intention that legislation will be introduced in Finance Bill 2017-18.
