Autumn Budget: 29 October 2018
Client Summary Note
Spreadsheet Phil was in good form in his (hour and fifteen minute long) speech today [29 October 2018]. Indeed, one wonders if he has secret aspirations to be a stand-up comic. However, when he presents a Budget as relatively benign as this one, we can probably forgive him a joke or two.
There were very few surprises in the Budget announcements, which in these days of Brexit uncertainty can only be a good thing. Businesses investing in equipment and in buildings will be particularly pleased to hear about the resurrection (more or less) of “IBAs” – now “Structures and Buildings Allowance”, and a very generous increase in the Annual Investment Allowance (to £1m). Some entrepreneurs will be less pleased to learn that the 12 month qualifying period for Entrepreneurs’ Relief has now been extended out to a 24 month period, and the rules for defining a 5% interest have been tightened, although for most genuine entrepreneurs growing their own businesses, probably these rules won’t be too much of a problem.
Of course there is then the usual list of additional anti-avoidance legislation and rules for the Government to better enforce its hard-earned taxes, but that is nothing more than we have come to expect these days.
Please see below for a summary of the key points from the Budget likely to affect our clients:
- Non-Resident Property Tax
- Capital Gains Tax Payment Window
- Main Residence Relief
- Stamp Duty Land Tax
- Off-payroll working for the private sector
- Entrepreneurs’ Relief
- Capital Allowances
- Corporate Business Taxes
- Tax Returns and Administration
Non-Resident Property Tax
Our 2017 Autumn Budget summary note referred to the introduction of a number of measures relating to the income tax and capital gains tax changes in connection with UK property. These measures have been confirmed, and may broadly be summarised as follows:
Tax Changes for UK property income of non-resident companies
Non-resident companies receiving rental income from UK property will as of April 2020 fall within the remit of corporation tax (instead of income tax as it currently stands).
HMRC will be effecting the transition to the corporate tax regime by writing to the companies over the summer of 2019 to inform them of the changes and will be issuing each company with a corporation tax reference number.
Further guidance is expected from HMRC prior to the changes coming into effect.
Changes to taxing gains made by non-residents of immovable property
As previously announced, the UK capital gains tax basis for non-residents will be expanded from residential property to all property (ie both residential and commercial) from April 2019. Furthermore, disposals by non-residents of shares in “property rich companies” will be caught going forward. A re-basing will, though, be possible from the date of the rule change.
It is expected that the Finance Bill 2018/19 will include the full legislation to be introduced from April 2019.
Capital Gains Tax payment window
Following earlier announcements on payments on account of capital gains tax in respect of disposals of residential property made by resident and non-resident individuals, further detail has now been provided as follows:
- The measure will take effect from 6 April 2019 for non-UK residents and covers all property gains, not just residential property.
- From 6 April 2020 even UK residents disposing of residential property gains will have to make a payment on account of the capital gains tax.
- A return in respect of the disposal must be delivered to HMRC within 30 days of completion of the disposal and from 6 April 2020 a payment on account must be made at the same time (regardless of whether the taxpayer is also dealt with under self assessment).
- For the period 6 April 2019 to 5 April 2020, no payment on account needs to be made by the non-UK resident if they are dealt with under self assessment.
- The rate of tax for individuals is to be determined after making a reasonable estimate of the amount of taxable income for the year.
- Gains on disposals reported under this system can be ignored when determining whether to register for self assessment.
- HMRC will be able to enquire into the CGT return separately from any tax return that may be due.
For UK residents – these reporting requirements will not apply where the gain:
- is not chargeable to CGT (e.g. due to the PPR exemption, unused losses or annual exemption)
- arises from the disposal of a foreign residential property in a country covered by a CGT DTA
- arises to a person taxed on the remittance basis
Main Residence Relief
HMRC are reducing the final period of deemed occupancy from 18 months to 9 months, relevant to individuals who are not occupying their principal residence property prior to its sale. Furthermore, lettings relief will be abolished other than where the individual receiving the income and claiming the relief also occupies the property along with the tenant.
There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.
The details of these measures will be under consultation in the coming months.
Stamp Duty Land Tax
First Time Buyers
First-time buyers will be pleased to hear that the Government is extending the SDLT relief to shared ownership properties, and is even backdating this relief to 22 November 2017, meaning that those who bought but did not think they were eligible may now be able to apply for a refund.
Non-Residents Buying UK Property
The Government has announced a consultation on an SDLT surcharge of 1% for non-UK residents purchasing residential property in England and Northern Ireland. This may not perhaps prove to be the deterrent some would hope for and may instead prove to be effective in raising additional revenue from overseas buyers willing to pay this additional cost for their investment in the UK property market.
Consultation will be published in January 2019.
Higher Rates Transactions
The time limit for claiming back additional SDLT paid by individuals purchasing a replacement main residence before the old one has sold is extended from 3 to 12 months after the old home is sold. This will ease the pressure on homeowners who would otherwise run the risk of missing out on the refund of the additional SDLT paid.
There is also a clarification in the new rules that a major interest in land includes an undivided interest in land. This has always been HMRC’s view, but perhaps this will lay to rest some of the more aggressive planning that was taking place in this area.
Off-payroll working for the private sector
The Chancellor is keen to press ahead with reforming the existing off-payroll working rules (known as IR35) for private sector organisations to bring them in line with the public sector. However, he has confirmed that the changes will not be introduced until April 2020 to allow businesses time to implement them. Also, they will only apply to medium and large businesses, meaning small organisations will also be exempt. In short, if a business currently has a sub-contractor working for them and they invoice for their services through a company, the organisation will need to assess whether or not that individual would actually be deemed to be an employee through the Government’s employment checker. If they are, then the organisation will need to deduct income tax and national insurance from payments made to them as they would an employee.
These new rules could have a big impact on some workers and companies using sub-contractors in this way. If you are an individual that currently provides services through your own company to medium or large organisations, we would advise you to look at the impact this may have on you well in advance of April 2020.
There has been a restriction on the very generous rules relating to Entrepreneurs’ Relief which can reduce the rate of capital gains tax to 10% on qualifying chargeable gains up to a lifetime limit of £10m. As a result, with effect from 6 April 2019 the minimum period throughout which the qualifying conditions for relief must be met is extended from 12 months to 24 months.
Under the heading of “tackling misuse of Entrepreneurs’ Relief” with effect from 29 October 2018, claimant shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company in order to claim the relief. This is in addition to the current requirements on owning at least 5% of the share capital and voting rights in the company. The stated Government objective is to ensure that allowable claims are limited to those which are within the spirit of the relief which was intended to reward true entrepreneurial activity rather than simple investment or employment.
Annual Investment Allowance
The Annual Investment Allowance, a form of Capital Allowance, which gives 100% tax relief in the year of acquisition for qualifying plant and machinery, has seen many changes since its inception in 2008.
The maximum amount of annual allowance available has yo-yoed between £25,000 and £500,000 in previous years (and rested everywhere in between!) but the Chancellor today announced that from 1 January 2019, the Annual Investment Allowance will increase to £1 million from its current limit of £200,000, which has been in place since 1 January 2016. The revised limit will be in place until 31 December 2020.
This is a very generous tax relief for businesses investing in equipment. If you are planning to make significant investments in the near future, please talk to us about the timing of these purchases to obtain the maximum tax relief available to you, as there will be transitional rules for accounting periods that span the 1 January 2019.
Structures and Buildings Allowance (SBA)
Since the abolishment of Industrial Buildings Allowances and Agricultural Buildings Allowances (remember those?!), there has been a gap in the Capital Allowances system for the cost of buildings and structures, with tax relief only being given on plant and machinery that forms part of the integral feature of a building, and no relief for the cost of acquiring or constructing a building. The Chancellor is addressing this gap by introducing the Structures and Buildings Allowance, which will be available for all contracts to build commercial buildings, entered into from 29 October 2018, and will be available for businesses chargeable to Income Tax and Corporation Tax.
The relief will be available if a business has constructed the asset itself, or if it has purchased it ready built from a developer. The value of any land acquired will not be eligible for the relief, and special provisions will apply to lease transactions.
The relief will see 2% of the cost of construction or renovation as a deduction against trading profits. The relief is also transferrable to future owners of structures that qualified at the time of construction, and no “balancing charge” will apply on a future sale of the asset.
Please get in contact if you would like Charter Tax to review proposed acquisitions, constructions, or leases of commercial buildings or structures to see if your transactions will qualify for the relief.
Reduction in writing down allowance for Special Rate pool expenditure
After reading about the introduction of the new Structures and Buildings Allowance above, you may be forgiven for reading this next new measure and thinking that the Chancellor is giving with one hand while taking with another.
As a further change to the Capital Allowances regime, he has announced that there will be a reduction in the rate of allowance given for Special Rate Pool expenditure, to 6% per annum from the current rate of 8%. The new rates will come into effect from 1 April 2019 for Companies and 6 April for businesses within the charge to Income Tax.
Special Pool Assets are long-life assets, integral features in buildings, and cars with C02 emissions greater than 110 g/km. Thankfully, assets that are classed as “Main Pool Assets” see no change, and relief for this expenditure is still available at 18%.
While the increased Annual Investment Allowance is available, this reduction may not have a huge impact on smaller businesses investing in Special Pool assets, but for those businesses that will exceed the £1 million annual limit, or who have incurred significant expenditure in earlier years, the reduction in relief available will be noticeable.
Other minor changes
The Government is releasing legislation to clarify how costs of altering land for the purposes of installing plant and machinery will only qualify if the plant and machinery itself qualifies for capital allowances.
The availability of 100% First Year allowances for the costs of energy efficient and environmentally beneficial technologies will be reduced, with products on the Energy Technology List and Water Technology List being withdrawn from the scheme. These items will be removed from the 1 April 2020 for Companies, and 6 April 2020 for businesses within the charge to Income Tax, so any planned expenditure should be incurred before these dates to still benefit from the relief.
Corporate Business Taxes
From 1 April 2020, corporate capital losses will be restricted in the same way as trading losses. Capital or income losses of up to £5m will remain unrestricted but above that amount, companies will only be able to use 50% relief for brought forward losses in a given year. The majority of small and medium business are unlikely to be affected by this change, but larger companies may see their tax bills rise as a result.
Digital Services Tax
To ensure that large, established, digital services companies are taxed on an equal footing, the government have introduced legislation for a 2% tax for search engines, social media platforms and online marketplaces, based on their turnover derived from users in the UK from April 2020.
Despite some comforting sounds from the Chancellor that he doesn’t plan to put the VAT registration threshold up, as he realises that it is a steep step to go from being unregistered to being registered for VAT purposes, there’s not much by way of other good news for VAT purposes, just more administration and tightening of rules, in particular:
- Construction Industry – from 1 October 2019 supplies within the construction industry will fall within the “reverse charge” mechanism for VAT.
- Online Platforms – HMRC are still looking to use new powers to make online marketplaces jointly and severally liable for VAT collected on sales through their platform.
- Unfulfilled Supplies – from 1 March 2019 the Government propose to change the VAT treatment of prepayments of goods and services and, as a result, bring these into the scope of VAT even where customers have then failed to collect what they have paid for (but have not received a refund).
- Anti-Avoidance – tighter rules are to be introduced to block arrangements still often used in the insurance industry whereby UK insurers set up associates in non-VAT territories and use these to supply their UK customers.
Businesses using the VAT grouping rules will, though, be pleased to learn that the ability to VAT group is to be extended from 1 April 2019 to be able to include certain non-corporate entities.
Rates and Allowances
|Changes to rates and allowances||2018/19||2019/20|
|Higher rate tax threshold||£46,350||£50,000|
|Starting rate for savings||£5,000||£5,000|
|ISA subscription limit||£20,000||£20,000|
|Child Trust Fund subscription limit||£4,260||£4,368|
|CGT annual exemption – individuals / personal representatives||£11,700||£12,000|
|CGT annual exemption – trustees||£5,850||£6,000|
|Pension lifetime allowance||£1.03m||£1.055m|
|ATED charge – property value||2018/19||2019/20|
|£500,000 to £1m||£3,600||£3,650|
|£1m to £2m||£7,250||£7,400|
|£2m to £5m||£24,250||£24,800|
|£5m to £10m||£56,550||£57,900|
|£10m to £20m||£113,400||£116,100|
|More than £20m||£226,950||£232,350|
Tax Returns and Administration
Voluntary tax returns
Currently, HMRC exercise their discretion to accept and treat tax returns received from customers voluntarily (i.e. where HMRC have not requested a tax return) as being received on the same basis as if the taxpayer had received a statutory notice to file. However, there have been a number of legal cases recently, where the position has been challenged and the courts have found in the taxpayer’s favour. In light of this, and perhaps unsurprisingly, legislation will now be introduced with retrospective effect to put this practice on to a statutory basis, i.e. as if the voluntary return had been delivered under a formal notice to file.
Extension of offshore time limits
Following the introduction from 1 October 2018 of more severe penalties for non-compliance where offshore assets are involved, Finance Bill 2018-19 will include legislation to extend the time limit for offshore tax non-compliance to 12 years for income tax, CGT and inheritance tax. Previously the time limits were 4 years for innocent mistakes and 6 years for careless ones. The time limit of 20 years for deliberate behaviour will remain.
Although HMRC consulted in the summer of 2018 on possible changes to late payment and late filing penalties, they have not had time to consider the responses in detail. They confirm that they are committed to revising the penalty legislation in a future Finance Bill, but have released no further information at present.
The Government has re-announced its intention to publish a consultation on the taxation of trusts.
The objectives are to make the taxation of trusts simpler, fairer and more transparent… but no date for the publication has yet been released.
Changes to the Employment Allowance
The Employment Allowance currently provides businesses and charities with up to £3,000 off their employer’s National Insurance contributions (NICs) bill each year. From April 2020 this allowance will be restricted to businesses with an employer’s NICs bill of less than £100,000 in the previous tax year.
Land value uplift
The Government confirms that it will introduce a simpler system of “developer contributions” that provides more certainty for developers and local authorities, while enabling local areas to benefit from a greater share of uplift in land values for infrastructure and affordable housing. The reforms include simplifying the process for setting a higher zonal Community Infrastructure Levy in areas of high land value uplift, and removing all restrictions on Section 106 pooling towards a single piece of infrastructure. The government will also introduce a Strategic Infrastructure Tariff for Combined Authorities and joint planning committees with strategic planning powers.
If clients are currently holding land with potential development gains, it may be sensible to bring forward plans to realise such gains before any increase in charges levied on developers come into effect.
CHARTER TAX CONSULTING LIMITED
11 ST JAMES'S PLACE
The information provided by Charter Tax Consulting Limited is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and information contained herein is provided based on legislation as at 29 October 2018.
Taxation planning concerns the application of complex statute and case law to future events. Accordingly, however expert the opinion given, it is always possible that the Courts will take a different view of the application of the law. We undertake to apply reasonable care and skill in the provision of advice. We do not guarantee that tax planning steps will in all circumstances achieve a certain legal effect.