Budget 2018 – What does it mean for individuals?
On 29 October 2018 the Chancellor of the Exchequer presented the Budget 2018. We have compiled the highlights and key points that individuals should note.
Budget highlights for private clients
- The personal allowance will be raised to £12,500 from April 2019, one year earlier than previously planned. At the same time, the higher rate threshold will rise to £50,000, also a year ahead of schedule. Both the personal allowance and higher rate threshold will then remain unchanged in 2020/21 before being increased in line with the consumer price index (CPI) thereafter.
- The pension lifetime allowance will increase to £1.055 million for 2019/20, with no change to the annual allowances.
- The minimum period throughout which the qualifying conditions for entrepreneurs’ relief must be met will be extended from 12 months to 24 months from 6 April 2019.
- The proposed shared occupancy test for rent-a-room relief has been abandoned and the existing tests will continue to apply.
- From April 2020, the final period capital gains tax (CGT) exemption for owner-occupied residential property will be reduced from 18 months to 9 months.
Personal taxation
| Main personal allowances and reliefs 2019/20 2018/19 | |||||
| Personal allowance[1] £12,500 £11,850 | |||||
| Married couples’ / civil partner’s transferable allowance £1,250 £1,190 | |||||
| Married couples’/ civil partners’ allowance at 10%[2]
(if at least one born before 6/4/35) |
maximum | £8,915 | £8,695 | ||
| minimum | £3,440 | £3,360 | |||
| Blind person’s allowance £2,450 £2,390 | |||||
| Rent-a-room tax-free income £7,500 £7,500 | |||||
| Registered pension scheme | |||||
|
£1,055,000 | £1,030,000 | |||
|
£4,000 | £4,000 | |||
|
£40,000 | £40,000 | |||
| 1 Personal allowance reduced by £1 for every £2 of adjusted net income over £100,000. 2 Reduced by £1 for every £2 of adjusted net income over £29,600 (£28,900 for 2018/19), until the minimum is reached. 3 Subject to 50% taper down to £10,000 if threshold income is over £110,000 and adjusted income is over £150,000. |
|||||
Income tax
| Income tax rates and bands | ||||
| UK excluding Scottish taxpayers’ non-savings income | 2019/20 | 2018/19 | ||
| 20% basic rate on income up to | £37,500 | £34,500 | ||
| 40% higher rate on income over | £37,500 | £34,500 | ||
| 45% additional rate on income over
|
£150,000
|
£150,000
|
||
| All UK taxpayers | ||||
| Starting rate at 0% on savings income up to4 | £5,000 | £5,000 | ||
| Savings allowance at 0% tax: | basic rate taxpayers | £1,000 | £1,000 | |
| higher rate taxpayers | £500 | £500 | ||
| additional rate taxpayers | £0 | £0 | ||
| Dividend allowance at 0% tax – all individuals | £2,000 | £5,000 | ||
| Tax rates on dividend income: | basic rate taxpayers | 7.5% | 7.5% | |
| higher rate taxpayers | 32.5% | 32.5% | ||
| additional rate taxpayers | 38.1% | 38.1% | ||
| 4 Not available if taxable non-savings income exceeds the starting rate band. | ||||
| Scottish taxpayers’ non-dividend, non-savings income5 | 2019/20 | 2018/19 |
| 19% starter rate on income up to | TBA | £2,000 |
| 20% basic rate on next slice of income up to | TBA | £12,150 |
| 21% intermediate rate on next slice up to | TBA | £31,580 |
| 41% higher rate on next slice up to | TBA | £150,000 |
| 46% top rate on income over | TBA | £150,000 |
| 5 To be announced – Scottish Budget to be published on 12 December 2018. |
| Trusts 2019/20 2018/19 |
| Standard rate band generally £1,000 £1,000 |
| Dividends (rate applicable to trusts) 38.1% 38.1% |
| Other income (rate applicable to trusts) 45% 45% |
| Child benefit charge: 1% of benefit per £100 of income between £50,000 and £60,000. |
Personal taxation
Income tax
The personal allowance will increase to £12,500 and the higher rate threshold will rise to £50,000 for 2019/20. From 2021/22, the personal allowance and higher rate threshold will increase in line with inflation. The Scottish tax bands and rates for non-savings, non-dividend income will be announced in the Scottish Budget, due on 12 December.
Saver
Don’t lose your personal allowance. Your personal allowance of £12,500 in 2019/20 is reduced by 50p for every pound that your income exceeds £100,000. You could make a pension contribution or a charitable gift to bring your income below £100,000.
Off-payroll working in the private sector
Following consultation and the roll-out of reform in the public sector, responsibility for operating the off-payroll working rules in the private sector will move from individuals to the organisation, agency or other third party engaging the worker. The change will take effect from April 2020, with an exemption for small organisations.
Rent-a-room relief
Following consultation, there will be no new ‘shared occupancy test’ for rent-a-room relief and the existing qualifying test of letting in a main or only residence will remain.
Employment allowance
From April 2020, the employment allowance of £3,000 a year will be restricted to employers with an employer national insurance contributions (NICs) bill below £100,000 in their previous tax year.
National insurance contributions
As announced in September, Class 2 NICs will not be abolished during this Parliament. Reforms to the treatment of termination payments and income from sporting testimonials will be legislated for in the National Insurance Contributions Bill, with changes taking effect from April 2020.
Car benefit scale
The petrol car benefit charge for 2019/20 is based on CO2 emissions in grams per kilometre and the car’s list price when new. For diesel vehicles, add 3% to the scale up to 37% maximum. The scale for 2019/20 is as follows:
| CO2 g/km | 0-50 | 51-75 | 76-94 | 95 and above |
| Charge | 16% | 19% | 22% | 23% + 1% for each extra 5g/km over 95g/km up to max. 37% |
Short-term business visitors
Eligibility for the special PAYE tax and administrative treatment of short-term business visitors from overseas branches of UK-headquartered companies will be widened from April 2020, and the deadlines for reporting and paying tax will be extended.
Pensions, savings and investments
Individual savings account (ISA) subscription limits
The ISA annual subscription limit for 2019/20 will remain at £20,000. The annual subscription limit for junior ISAs (JISAs) and child trust funds (CTFs) for 2019/20 will rise to £4,368.
Lifetime allowance for pensions
The lifetime allowance for pension savings will increase to £1.055 million for 2019/20. There is no change to the annual allowances.
Venture capital trusts (VCTs) and enterprise investment schemes (EISs)
The rules for approved EIS funds will be amended to require approved funds to focus on knowledge-intensive companies with effect from April 2020. The funds will also have a longer period in which to invest capital. Investors in these funds will be allowed to set this income tax relief against their liabilities in the year before the fund closes.
The venture capital limits and reliefs remain unchanged, as detailed below.
| Venture capital allowances and reliefs 2019/20 2018/19 |
| Venture capital trust at 30% £200,000 £200,000 |
| Enterprise investment scheme at 30%1 £2,000,000 £2,000,000 |
| – EIS eligible for capital gains tax deferral relief No limit No limit |
| Seed EIS (SEIS) at 50% £100,000 £100,000 |
| – SEIS capital gains tax reinvestment relief 50% 50% |
1 Investment above £1,000,000 must be in knowledge-intensive companies
Pensions for the self-employed
This winter the Department for Work and Pensions will publish a paper setting out the government’s approach to increasing pension participation and savings persistency among the self-employed. The paper will focus on expanding evidence through a programme of targeted interventions and partnerships.
Think ahead
The lifetime allowance will rise by £25,000 from 6 April 2019. If you plan to draw from your pensions and already have funds exceeding the current £1.03 million lifetime allowance limit, you may want to wait before taking your pension benefits.
Think ahead
The dividend allowance and personal savings allowance will be frozen for 2019/20. Your ISA allowance is £20,000 in 2018/19 and 2019/20.
Capital taxes
Capital gains tax: annual exempt amount
The annual exempt amount for individuals and personal representatives will rise to £12,000 for 2019/20, while the amount for most trustees will increase to £6,000 (minimum £1,200).
Entrepreneurs’ relief
From 6 April 2019, the minimum period throughout which the qualifying conditions for the relief must be met will increase from 12 to 24 months.
From 29 October 2018, shareholders claiming entrepreneurs’ relief must be entitled to at least 5% of the distributable profits and net assets of a company, in addition to the current requirements on share capital and voting rights.
As announced at the 2017 Autumn Budget, individuals can qualify for entrepreneurs’ relief where their shareholding is diluted below the 5% qualifying threshold by fund-raising events after 5 April 2019.
Private residence relief
From April 2020, lettings relief will only apply where the owner of the property is in shared occupancy with the tenant.
The final period exemption will be reduced from 18 months to 9 months. There will be no changes to the 36-month final period exemption available to disabled individuals or to those in a care home.
Inheritance tax (IHT)
The IHT nil rate band remains at £325,000 for 2019/20.
The residence nil rate band (RNRB) will increase to £150,000 from 6 April 2019 as already legislated. From 29 October 2018, minor technical amendments to the RNRB will take effect relating to downsizing provisions and the definition of ‘inherited’ for RNRB purposes.
Think ahead
IHT simplification is on the agenda. Now may be a good time to review making lifetime gifts before the tax rules are ‘simplified’ into something less generous.
Property taxes
Stamp duty land tax (SDLT)
First-time buyers’ relief in England and Northern Ireland will be extended so that all qualifying shared ownership property purchasers can benefit, whether or not the purchaser elects to pay SDLT on the market value of the property. The change will apply to transactions with an effective date of 29 October 2018 and will also be backdated to 22 November 2017.
The government will publish a consultation in January 2019 on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Non-UK residents’ gains
Gains that accrue to non-UK residents on non-residential property will be subject to tax. Non-UK residents will also be subject to tax on gains in diversely-held companies, those widely-held funds not previously included, and life assurance companies. They will also be taxed on gains on interests in UK property-rich entities, such as shares in companies that derive at least 75% of their value from UK land. The measures which have been previously announced will take effect for disposals made after 5 April 2019 and there will be an anti-forestalling rule for arrangements entered into after 21 November 2017.
Annual tax on enveloped dwellings
The annual tax on enveloped dwellings (ATED) for 2019/20 will be increased in line with inflation, as detailed in the table below:
| Property value | Charge for tax year 2018/19 |
Charge for tax year 2019/20 |
| More than £500,000 but not more than £1m | £3,600 | £3,650 |
| More than £1m but not more than £2m | £7,250 | £7,400 |
| More than £2m but not more than £5m | £24,250 | £24,800 |
| More than £5m but not more than £10m | £56,550 | £57,900 |
| More than £10m but not more than £20m | £113,400 | £116,100 |
| More than £20m + | £226,950 | £232,350 |
Think ahead
Three-quarters of any interest tax relief for personal buy-to-let borrowing will be limited to a 20% tax credit from 2019/20. Make sure you understand the impact of this latest change on your overall tax position.
Think ahead
From 6 April 2020, CGT on residential property will be payable within 30 days of sale. If you are thinking of selling buy-to-let property, the existing rules can give you up to almost 21 months before any tax bill arrives.
National insurance contributions
| Class 1 (Employees) | 2019/20 | 2018/19 | ||
| Employee | Employer | Employee | Employer | |
| NIC rate | 12% | 13.8% | 12% | 13.8% |
| No NICs for younger employees1 on the first | £166 pw | £962 pw | £162 pw | £892 pw |
| No NICs for employees generally on the first | £166 pw | £166 pw | £162 pw | £162 pw |
| NICs rate charged up to | £962 pw | No limit | £892 pw | No limit |
| 2% NICs on earnings over | £962 pw | N/A | £892 pw | N/A |
| 1 Employees generally under 21 years and apprentices under 25 years. | ||||
| Employment allowance | 2019/20 | 2018/19 |
| Per business | £3,000 | £3,000 |
| Not available if the sole employee is a director. | ||
Earnings limits or thresholds |
2019/20 | 2018/19 | |||
| Weekly | Annual | Weekly | Annual | ||
| Lower earnings limit | £118 | £6,136 | £116 | £6,032 | |
| Primary earnings limit | £166 | £8,632 | £162 | £8,424 | |
| Secondary earnings threshold | £166 | £8,632 | £162 | £8,424 | |
| Upper earnings limit and Upper secondary earnings threshold (under 21)2 |
£962 | £50,000 | £892 | £46,350 | |
| 2 Employees generally under 21 years and apprentices under 25 years. | |||||
| Class 1A (Employers) | 2019/20 | 2018/19 |
| Most taxable employee benefits | 13.8% | 13.8% |
| Class 2 (Self-Employed) | 2019/20 | 2018/19 |
| Flat rate | £3.00 pw £156.00 pa | £2.95 pw £153.04 pa |
| Small profits threshold:
|
£6,365 pa | £6,205 pa |
| Class 4 (Self-Employed) | 2019/20 | 2018/19 |
| On profits | £8,632 – £50,000 pa 9% | £8,424 – £46,350 pa 9% |
| Over £50,000 pa 2% | Over £46,350 pa 2% | |
| Voluntary | 2019/20 | 2018/19 |
| Class 3 flat rate | £15.00 pw £780.00 pa | £14.65 pw £761.80 pa |
Disclaimer
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.