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Budget 2018: A private client perspective

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The scene was set: justification for eight years of austerity, difficult decisions and the impact on the UK’s ‘strivers, grafters and carers’. You get the picture… Here is a chancellor wanting to tell a story about how bad things have been, how he has made things better and how they will improve further if we follow his lead.

A tax cut for 32m taxpayers...

Let’s be positive; what’s not to like about accelerating the increase in personal allowances and the starting point for higher rates of tax? One year earlier than anticipated, we will see the introduction of a £12,500 personal allowance with the higher rate tax threshold of £50,000 being introduced at the same time. It is estimated that 32m individuals will see their tax bill reduced in 2019/20 compared to 2015/16.
The downsides are the potential impact on NICs, child benefit charges and the extension of the 60% tax band on income over £100,000.

Savings and pensions

If taxpayers have surplus income, there might be some incentive to save or donate to charity. Unfortunately, the adult ISA limit remains unchanged at £20,000 for 2019/20, but the subscription limit for junior ISAs and child trust funds increases in line with inflation to £4,368.
The 0% starting rate for savings income will remain at its current level of £5,000 and the dividend allowance remains at £2,000 for 2019/20. 
Better news is that, despite fears that the pension lifetime limit could be attacked, it will actually increase in line with inflation to £1,055,000 from April 2019. The annual contribution limits remain the same for now.

Property issues

Property ownership in the UK is a hugely emotive subject and has been used as a ‘cash cow’ with receipts from SDLT and inheritance tax increasing as property prices have soared. The introduction of NRCGT, with the 30-day reporting window and payment date that is being reduced further to 14 days from 6 April 2019, demonstrates that the focus on CGT continues. The rules are broadened to include all immovable property (directly and indirectly owned land including commercial property) from next year and, more alarmingly, inclusion of UK residents in the onerous payment regime from 6 April 2020. 
In part due to the restrictions on pension contributions, property investment in the UK has soared. HMRC reduced the exempt period for PPR relief to 18 months from three years in 2014, and now seeks to ‘better target relief to owner occupiers’. 
In practice this may not be seen to create too much of a problem but if the property market stagnates further, it may take longer to sell than anticipated and homeowners could choose to rent rather than leave a property empty. For those that let their main residence, they have been able to rely on lettings relief as an additional exemption from capital gains tax, but it is proposed that, from April 2020, this will only be available where there is shared occupancy with a tenant. The government has announced a consultation to consider the shared occupancy point and reduce the period of PPR relief to nine months from April 2020.
On a more practical note, it has been recognised that there is a move towards Airbnb-type arrangements. Rent-a-room relief currently provides an exemption for up to £7,500 of rental income from letting furnished accommodation in your own home. It had been proposed that the relief should only be available where the owner occupies the property at the same time as the tenant. However, this has been dropped ‘to maintain the simplicity of the system’. It is hoped that this same conclusion is reached in connection with the proposed changes to letting relief. 
The chancellor previously announced SDLT exemptions for first-time buyers acquiring properties up to £300,000 and partial exemptions where the property was worth less than £500,000. In areas where property prices are high, many have used shared equity as their only chance of getting on the property ladder.
This created practical issues relating to the SDLT charge. Many purchasers use shared equity to acquire the property in stages, renting part of the property until they can afford to acquire it. SDLT is calculated on the market value of the property on acquisition. The relief is now extended to those purchasing through approved shared equity schemes, and is given retrospectively from 22 November 2017, which may generate refunds for some. As this is a key measure to enable property ownership, it is good news that this oversight has been remedied.

Nothing too controversial...

Despite pre-Budget speculation, there was nothing material relating to inheritance tax, although there will be yet another consultation on trusts. Some tightening of the entrepreneurs’ relief provisions that will increase the minimum holding period and clarify the definition of a personal company were introduced, but nothing too controversial.
The chancellor has delivered a Budget that is cautiously optimistic but leaves wiggle room for future tax increases. As there is still a question mark about how long-term care will be funded and how the post-Brexit economy (which was mentioned almost as an afterthought) will fare, that is probably a wise move. Expectations have been raised for the government to deliver based on fact rather than fiction. 
Issue: 1419
Categories: Analysis , Private client taxes