UK Budget Summary following BritCham Presentation Friday 2nd November 2018
The Chancellor of the Exchequer, Philip Hammond, stood up on a Monday to give his Budget address – the first Chancellor to do that for 56 years. He might have stuck to the more traditional Wednesday, but as that fell on Halloween I suspect that he might have wanted to avoid the predictable ‘Hammond’s House of Horrors’ or ‘More Trick, less Treat’ type of headlines.
In the event, what we got was a measured and thoughtful Budget which wouldn’t have led to any particularly apt Halloween epithets in any case. There were no barnstorming announcements and all of the major rates of tax stay unchanged. However, an eclectic range of more targeted measures and reliefs were announced which, for the most part, add value to the UK tax system, its place in the world and the economy at large.
It was interesting that in Philip Hammond’s first Budget in 2016, he did not use the word ‘Brexit’ (or any equivalent) even once. In this Budget, it was mentioned only a very few times. Clearly, he wants to signal that it is ‘business as usual’, at least until we leave.
Nonetheless, the great unknown about how we will leave is obviously looming large in his thinking and policy-making. If there is an orderly exit with a deal (perhaps even in time for Christmas!), Philip Hammond talked about the ‘double dividend’ of an end to uncertainty and the possibility of releasing some of the reserves he had been holding back. If we leave without a deal, he confirmed that the Spring Statement would likely become a ‘full fiscal event’ – presumably heralding a new strategy and new priorities, with all that might mean.
Main Announcements for Individuals
- The Income Tax Personal Allowance will be raised to GBP 12,500 from 6th April 2019, with the Basic Rate Tax band increasing to GBP 37,500.
- This meets a manifesto commitment one year early and puts the Higher Rate Threshold up to GBP 50,000. This is great news for any British or EU nationals (as well as certain other non-residents who qualify for the Allowance) who have taxable incomes in the UK.
- The increase in the Basic Rate Band is matched by an increase in the Higher Rate Threshold for National Insurance purposes. So, those who pay National Insurance on their salaries will see a slight increase in their NIC withholdings. As a consequence of these changes, there are a mind-boggling 8 different marginal rates of Tax and National Insurance which apply to those who are resident in Scotland – the right to set the Basic Rate of Income tax was devolved to the Scottish Parliament a couple of years ago.
- A ‘Consultation’ has been announced to explore the possibility of making two changes to the calculation of Capital Gains Tax on the disposal of a person’s Principal Private Residence:
- To reduce the tax-exempt final period of ownership from 18 months to 9 months, and to abolish ‘lettings relief’ for periods in which the property was not in shared occupation between the owner and the tenant.
- This is unhelpful, but is, at least subject to Consultation. If enacted, these will be the 16th and 17th changes to the tax regime in respect of residential property in the last 8 years. Clearly continued care will be needed when making these calculations.
- Non-Resident Capital Gains Tax (NRCGT) was introduced on 6th April 2015 for disposals of residential property in the UK by non-residents. It will be extended to non-residential property from 6th April 2019. When a non-resident disposes of an interest in relevant property it is necessary to file a special ‘NRCGT’ return within 30 days of completion. However, if that person also files an Income Tax return in the UK the tax due on from the sale need only be paid by the Statutory Payment Deadline of 31st January following the end of the tax year. From 6th April 2020 this will change (both for residents and non-residents) – whereby the Capital Gains Tax will be due for payment within the same 30 day filing deadline.
- There had been much talk prior to the Budget about a potential surcharge in Stamp Duty Land Tax for non-residents. We expected a ‘from midnight tonight’ announcement along these lines, particularly as Theresa May had spoken publicly about a surcharge of between 1% - 3%. In the event, what was announced was a Consultation (to begin in January 2019) on a 1% surcharge.
- A 1% surcharge on a GBP 1m property under Higher Rates of Stamp Duty Land Tax would yield a tax charge of GBP 83,750, as against GBP 43,750 for a first property. This is unwelcome generally, but might have been very much worse.
- Stamp Duty Land Tax only applies in England and Northern Ireland, and it will be interesting to see if the Scottish and Welsh Parliaments propose similar surcharges.
- Those of us paying Voluntary National Insurance under Class 2 will be pleased to hear that it has been granted a stay of execution. Class 2 NICs will continue at least until the end of this Parliament, and perhaps beyond. The weekly rate will rise GBP 3 from 6th April 2019.
- There had been much speculation that Philip Hammond would target tax relief on pension contributions in this Budget. Happily he left that well alone, and the Lifetime Allowance for UK occupational pension rights rose to GBP 1.055m, in line with CPI.
- The ISA allowance remains fixed at GBP 20,000 (with a very small increase in the subscription allowance for Junior ISAs). Non-Residents are not allowed to invest in ISAs, but can retain policies whilst non-resident which they held at the point of leaving the UK.
Main Announcements Relevant to Business
- The limit on UK work days for Short Term Business Visitors able to benefit from ‘special PAYE arrangements’ will rise from 30 to 60, which will greatly reduce the administrative burden on business and affected individuals alike.
- The Chancellor reconfirmed that Corporation Tax will fall to 17% from 1st April 2020 from the current 19%, making the UK the lowest Corporation Tax regime in the G20 withone of the most competitive rates in the developed world.
- The Chancellor also announced that the Annual Investment Allowance will enjoy an increase from GBP 200,000 to GBP 1 million for the 2019 and 2020 calendar years, effectively providing a far increased in-year tax write down for the purchase of plant and machinery.
- He also announced a new Structures and Buildings Allowance, effective for relevant contracts entered into from 29th October 2018. This will permit such expenditure to be written down at a rate of 2% over a 50 year period – a write down which had not previously existed, and will be welcomed by all in the business community.
- It was heartening to see two measures aimed at small businesses. First, a reduction in Business Rates of one third for businesses operating from premises with a rateable value of up to GBP 51,000. Secondly, a new funding package of GBP 675m aimed at renovating declining High Streets.
- For those with business interests which would qualify for Entrepreneurs Relief upon disposal (unlikely to apply to most non-residents, who are typically exempt from Capital Gains Tax), the period during which qualifying conditions must be met was increased from 1 to 2 years. This will only typically be a problem for very short term business ownership.
- The Chancellor also confirmed the transition of Non-Resident Companies which operate UK property businesses from Income Tax and Capital Gains Tax to Corporation Tax from 1st April 2020. This will impose a greater compliance burden on those businesses, as well as the need to calculate taxable profits by reference to Corporation Tax rules. However, the rate of tax (by then) will be 17%, as against the 20% these business currently have to pay.
- As has been (rightly) de rigeur over the last 10 - 15 years, the Government has continued to underscore its commitment to tackling tax evasion and tax avoidance.
- The ‘tax gap’ – the difference between the tax which should have been paid and which was actually paid – fell to its second lowest level on record in 2016/17, so the various policies are obviously working.
- Tax evasion is, of course, illegal. Tax avoidance is the application of the tax code to produce outcomes which were unintended by the legislators. Tax Planning is using the tax code to enjoy outcomes which are intended by the legislators and is not in HM Treasury’s sights.
- However, I was intrigued to read a new term which I don’t think I have seen before in this context – unfair outcomes. HeavHeaven only knows what that actually means, when we have three perfectly clear definitions already which seem to cover the full scope of tax planning behaviours.
- A new Digital Services Tax has been announced, which will come into effect in April 2020. This will apply a 2% charge on the reserves arising from UK sales activities of certain large digital businesses – typically search engines, social media platforms and online marketplaces. It is hoped that the DST will only be a temporary measure (it will be reviewed in 2025) pending a global agreement on how to tax such revenues. But rather than wait, the Government was keen to set the standard and has pressed ahead with its own measures.
- Measures were announced to combat Corporation Tax avoidance in the area of intangible assets in a multinational context, and a new relief will be introduced from 1st April 2019 for the cost of goodwill for purchases of certain businesses with eligible Intellectual Property.
- Finally, a ‘world-leading’ new tax on single-use plastics is to be introduced in due course, where the product contains less than 30% recycled content. The detail of this is not yet known but is obviously a step forward in the much-lauded ‘war on plastic’.
Overall, this was a ‘holding Budget’, replete with specifically targeted but meaningful measures. Time will tell whether a ‘full fiscal event’ will be required in the Spring. However, in the meantime, at least as far as the main rates and allowances go, it is very much a question of ‘as you were’.