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Budget – The Key Points

  • Thursday, November 1, 2018

Red Budget BoxTax Thresholds & Allowances

The Budget announced the following thresholds and allowances will take effect from the 2019/20 tax year. The government had previously planned to increase the personal allowance and higher rate thresholds to these levels by April 2020 so the increases have occurred a year earlier than expected.

Income Tax

Personal allowance will rise to £12,500
Higher rate threshold will increase to £50,000
Starting rate for savings income will remain unchanged at £5,000

Capital Gains Tax

The Annual Exempt Amount for capital gains will increase to £12,000 for individuals and £6,000 for trusts.

Inheritance Tax

The nil rate band remains unchanged at £325,000
The residence nil rate band will increase to £150,000 as previously planned

This is good news for the majority of individuals. Those who were planning to crystallise either capital or chargeable gains may decide to postpone triggering gains until the new tax year to benefit from a lower tax rate, although this will also depend on the reason for encashing their investments in the first place.

Anyone who deferred their state pension under the old rules may also decide to wait until the new tax year to draw the lump sum as the full amount is taxed at your highest income tax rate rather than being added to your income and taxed in full.

Pensions

Standard Lifetime Allowance

As expected, the standard Lifetime Allowance for pensions will change in line with the consumer prices index (CPI) increase for 2019/20 from £1,030,000 to £1,055,000 from 06/04/2019.

Banning Pensions Cold Calling

As soon as possible, the government will ban pensions cold calling or unsolicited direct marketing calls in relation to pensions products/services. They will prohibit cold calling in relation to pensions unless the caller is authorised by the Financial Conduct Authority (FCA), or a trustee/manager of an occupational or personal pension scheme.

The ban covers direct marketing in relation to pensions and is not limited to calls in relation to pension transfers. Use of email and text messaging for direct marketing purposes is already restricted. The ban will be enforced by the Information Commissioner’s Office (ICO) and they will publish industry guidance later this year.

The Government is committed to introducing legislation to limit the statutory right to a pension transfer. This is a measure aimed at preventing pension savings from being transferred to fraudulent pension schemes, and to help protect members at the crucial point where a scammer has persuaded them to transfer.

Public Service Pensions

Following reforms to public service pensions in 2015, further changes are likely from 2019/20 to make pension benefits more generous for public servants, including teachers, police, armed forces and NHS staff.

The Budget confirms a reduction of the discount rate for calculating employer contributions in unfunded public service pension schemes. The valuations indicate that there will be additional costs to employers in providing public service pensions over the long term.

The Government is trying to ensure that these costs do not jeopardise the delivery of frontline public services or put undue pressure on public employers, particularly for the National Health Service (NHS) and state schools.

The Spending Review next year will settle the funding for costs beyond 2019/20 arising from the valuations.

Capital Gains Tax

Private Residence Relief

Currently, the relief can be claimed by individuals who let out a property that is, or has in the past been, their main residence. From April 2020, the government will reform lettings relief so that it is only available to individuals in shared occupancy with a tenant.

Currently, the exemption means that people do not have to pay CGT on gains made in the final 18 months of ownership. From April 2020, the exemption will be reduced to 9 months. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.

Entrepreneurs Relief

To claim Entrepreneurs’ Relief the minimum period over which the relevant qualifying conditions must be met is being extended from 12 months to 24 months for disposals from 6 April 2019. It is expected that 95% of claimants will be unaffected by this change.

Stamp Duty Land Tax

First Time Buyers

Stamp Duty Land Tax (SDLT) first-time buyers relief will be extended in England and Northern Ireland to apply to all first-time buyers purchasing residential property worth up to £500,000 through a qualifying shared ownership scheme. The relief will also apply to shared ownership property buyers who have already paid SDLT on the initial equity stake and rental amount since the introduction of the relief on 22 November 2017.

They will have a year to make a backdated claim for the relief. This measure will be effective from 29 October 2018.

Non-residents

A consultation will be issued in January 2019, on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

2019/20 tax rates

  TAX YEAR 2018 TO 2019 TAX YEAR 2019 TO 2020
PERSONAL TAXATION
Income tax bands
Basic £1 – £34,500 £1 – £37,500
Higher £34,501 – £150,000 £37,501 – £150,000
Additional Over £150,000 Over £150,000
Income tax rates (main rate)
Basic 20% 20%
Higher 40% 40%
Additional 45% 45%
Starting rates for savings income 0% 0%
Income tax rates (dividends)
Basic 7.5% 7.5%
Higher 32.5% 32.5%
Additional 38.1% 38.1%
Income tax allowances
Personal allowance £11,850 £12,500
Starting rate for savings income £5,000 £5,000
Dividend allowance £2,000 £2,000
Personal savings allowance £1,000 (BR) £500 (HR) £0 (AR) £1,000 (BR) £500 (HR) £0 (AR)
Capital gains tax rates
Main rates for individuals 10% / 20% 10% / 20%
Residential property (not otherwise eligible for relief) 18% / 28% 18% / 28%
Capital gains tax allowances
Annual exempt amount £11,700 £12,000
Inheritance Tax
Nil rate band £325,000 £325,000
Residential nil rate band (RNRB) £125,000 £150,000
Rate (estates) 40% 40%
Reduced rate (10% of estate to charity) 36% 36%
Rate (CLTs) 20% 20%
TRUSTS AND ESTATES
Income tax bands
Standard rate band Up to £1,000 Up to £1,000
Income tax rates
Trust rate 45% 45%
Dividend trust rate 38.1% 38.1%
Capital gains tax allowances
Annual exempt amount Up to £5,850 £6,000
Capital gains tax rates
Main rate 20% 20%
Residential property (not otherwise eligible for relief) 28% 28%
CORPORATE
Corporation tax 19% 19%

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Article by

Client Relations Manager

Liam is part of the investment management team and responsible for the building, implementation and on-going rebalancing and management of our nine “in house” investment portfolios.