Budget 2018 (nothing spooktacular)

This is the first time since 1962 that a Budget has been held on a Monday rather than the traditional Wednesday. Apparently, this was to avoid a clash with Halloween!

With no significant tax or pension changes in this week’s Budget, planning for the next tax year can be undertaken with a degree of confidence in the measures announced.    A brief summary of the main points is set out below:

Income tax

  • The personal allowance and higher rate threshold will increase earlier than expected to £12,500 and £50,000 respectively from April 2019.
  • There are no other changes to income tax bands or allowances.
  • The Dividend Allowance will remain £2,000 and the tax rates for dividends are unchanged

National Insurance

There are no changes to national insurance rates. The upper earnings limit will increase to £50,000 in line with the higher rate income tax threshold

Pensions

Subject to much discussion pre-Budget, these have largely been left as they are, the two main points of note are:

  • The pension lifetime allowance (LTA) will rise to £1,055,000 from April 2019.
  • Reassuringly, there are no changes to pension annual allowances (AA).  The standard AA remains at £40,000, the money purchase AA stays at £4,000 (with no carry forward) and there are no changes to the high income AA taper rules.

Capital Gains Tax

Firstly the Capital Gains Tax allowance will increase by £300 to £12,000 from April 2019 and there are no changes to the tax rates, which depend on the type of assets sold. However, the Budget did include important changes to the tax applied when a property is both a main residence and is let to a tenant.

1: Private Residence Relief: Lettings 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.

2: Private Residence Relief: Final period exemption

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.

 Inheritance tax

  • As expected, the IHT nil rate band will remain frozen at £325,000 until April 2021.
  • As previously announced, the residence nil rate band will increase from £125,000 to £150,000 from April 2019, allowing some couples to leave up to £950,000 to future generations free of IHT.

 ISAs

  • Annual ISA limits stay at £20,000 per person, with no reduction in the range of ISA options available to meet different needs.
  • While the adult ISA allowance remains the same (£20,000), the annual allowance for Junior ISAs and Child Trust Funds will be increased in 2019 in line with inflation, to £4,368.
  • The lifetime ISA annual subscription limit for 2019-20 will remain unchanged at £4,000.

What Next?

HM Treasury currently has several consultation processes in to tax related matters such as Taxation of Trusts and Inheritance Tax in general. Further consultation is also planned for the following:

  • Boosting pensions for the self-employed
  • Funding of Public Sector Pensions
  • Pension funding in patient capital

Our view

This appears to be a tax neutral and relatively simple Budget and we welcome the news that tax relief on pensions and pension contribution limits have not been changed.

As ever, the devil is in the detail and we look forward to studying the small print in the Budget. We will be providing updates over the coming days and weeks and in our client reviews.

In the meantime, if you have any questions on the Budget update please contact us on 01244 347 583.

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