The Spring Statement was made by Chancellor, Philip Hammond at lunchtime and following the Brexit vote last night, it was no surprise that tax was not the main focus of today. However, it is certain that tax has not been forgotten with the raft of consultations in the coming months.
Making Tax Digital (“MTD”) comes into force from 1 April 2019 for VAT. The Chancellor sees this as an important first step in the modernisation of the tax system to which the government remains committed. The focus will be on supporting businesses through the transition and the government announced it will not be mandating any new taxes on businesses in 2020.
2019 tax rates & proposed changes at a glance
Personal Taxation – 2019/20
- Income Tax – 20/40% rates with the basic rate band up to £37,500 in 2019/20 with personal allowances up to £12,500, so taxpayers hit the 40% rate if income exceeds £50,000 (£46,350 in 2018/19) but lose their personal allowance if income exceeds £100,000.
- National Insurance Contributions (NICs) – continues with rates of 12/2% for employees and self-employed rates (Class 4 NICs) continue at 9%/2% from April 2019.
- Property income – interest relief was restricted for residential buy-to-lets (excluding furnished holiday lettings) from April 2017 and down to basic rate (20%) by April 2020. Rent-a-room relief remains at £7,500pa.
- Dividend income – Dividend tax started on 6 April 2016 with a rate of 7.5% above £5,000pa, 32.5% for higher rate taxpayers & 38.1% for income above £150,000pa. The tax-free dividend allowance remains at £2,000.
- Capital Gains Tax – The main tax rate is 20% for higher rate taxpayers (top slice only) & down to 10% for basic rate taxpayers from 6 April 2016, except 28%/18% for residential property sales. Entrepreneurs’ Relief continues with tax rate of 10% for lifetime gains of £10 million per individual with 10% relief extended to individuals on private trading company shares held for over 3 years.
- Enterprise investment scheme (EIS) relief-limit up to £2m (from £1m) for tech. companies. However, there will be draft guidelines for comment alongside draft legislation regarding approving such funds.
- Inheritance Tax – nil rate band frozen at £325,000 until 2021 but the exemption extended by £125,000 from April 2018 for family homes. Exemption for pension funds transferred on death before age 75.
- ISA allowances – Limit kept at £20,000pa with a special ISA for first-time house buyers.
- Pensions tax relief – Higher rate tax relief to be restricted for income in excess of £150,000pa. Contribution tax relief is capped at £40,000pa but was reduced to £10,000pa from 6 April 2016.
Business Taxation – 2019/20
- Corporation tax – Rates for all companies 19% from April 2017 & confirmed will be reduced to 17% from April 2020. Loans to shareholders are now taxed at 32.5%.
- Capital allowances -100% relief limit for equipment purchases is £1,000,000pa from January 2019.
- Structures and Buildings Allowance – draft legislation to introduce a new permanent allowance for investments in non-residential structures and buildings to create a more competitive regime for businesses as announced at the 2018 Budget.
- National insurance contributions (NICs) – Employment allowance consultation on restricting this to businesses with employer NIC bill below £100,000.
- VAT – standard rate – standard rate maintained at 20% and registration threshold frozen remains at £85,000.
- Stamp Duty on shares – consultation introducing a general market value rule for transfers between connected persons.
- Research and Development (R&D)– following 2018 Budget a consultation on preventing the abuse of R&D tax relief.
Ellacotts Top Ten Tax Tips
1. The personal allowance is planned to increase by £650 (to £12,500) from 6 April 2019 and the basic rate band will be increased to £37,500 so the 40% tax rate applies to chargeable annual income exceeding £50,000. Family businesses should consider how each member withdraws profits from the business to maximise use of the tax allowances and rate bands. However, the dividend tax now applies to company dividends exceeding £2,000pa.
2. A 60% income tax rate applies to those whose income falls between £100,000 and £125,000 in 2019/20. Anyone who believes their personal income may exceed £100,000 per annum should consider whether they can claim tax relief (eg pension payments) or share income with other members of the family. Please ask for advice about your pension planning.
3. The company corporation tax rate is now 19% in April 2019 and will reduce to 17% in April 2020. So, some partnerships and sole traders could consider incorporating into a limited company to benefit from lower tax rates. The government plans a review of incorporation so beware!
4. The annual limit for individual savings accounts (ISAs) will be £20,000 from April 2019. ISAs are very tax-efficient and the increased limit and simplified structure will make it easier to make investments that save income tax. Please ask for advice on this if relevant.
5. Tax relief is restricted for higher income individuals (>£150,000pa) from 6 April 2016 but radical changes for pension schemes in 2015 allow more access to funds. Access to pension funds will be much more flexible although income tax will be payable on these amounts. Inherited pension funds and income from joint annuities will no longer suffer a tax charge. Pension planning will be even more important especially for those at or approaching retirement.
6. The main capital gains tax rate is now 20% for higher rate taxpayers, trusts and estates and down to 10% for basic rate taxpayers. Rates of 28%/18% rates continue for capital gains on sale of residential properties. Entrepreneur’s relief continues to reduce the rate to 10% for qualifying gains up to £10 million on trading asset disposals. Business owners should check carefully whether they qualify for entrepreneurs’ relief as this relief could be worth up to £1,000,000 in tax savings per individual. However, beware new on holding the assets/shares for 24 months.
7. The increase of the inheritance tax nil rate band from £325,000 to £500,000 (for family homes) per individual (£1 million per couple) will allow more wealth to pass to the next generation without tax being payable at 40%. This encourages longer-term planning to start at an earlier age and the use of family trusts to protect assets for younger beneficiaries. So what’s your family succession strategy?
8. Significant capital allowances at 100% on £1,000,000 of equipment purchases provide a major tax payback for capital-intensive businesses (eg farmers, hauliers & manufacturers). Timing of planned capital expenditure is crucial to ensure tax relief falls into the best tax year.
9. The R&D tax credits are still a very tax efficient way of enhancing your business and helping with investment into new projects. Make sure that your company is maximising its ability to make this claim in the next tax year.
10. New tax residence rules started in April 2013 and, for many individuals, this makes it more difficult for them to escape liability to UK taxes if they spend time abroad. These rules are complicated and we can advise those who are affected by the consequences of these changes.
New rules apply to non-domiciled individuals resident in the UK since April 2017.