Autumn Budget 2018

30 October 2018

The Chancellor delivered the Autumn Budget on Monday 29 October. A summary of the changes to taxes that could affect Private Clients can be found below.

Annual Tax on Enveloped Dwellings

Annual tax on enveloped dwellings (ATED) is a tax payable mainly by companies that own UK residential property valued at more than £500,000.  From 1 April 2019, the ATED charges will rise by 2.4%.

Capital Gains Tax

Principal Private Residence Relief

Principal Private Residence Relief (PPR) is a capital gains tax relief on the disposal of an individual's only or main residence.

Lettings relief currently provides up to £40,000 of relief to individuals who let out a property which is or has been their main residence.  From April 2020, this relief will only be available to those who are in shared occupation with the tenant.

Previously, provided the dwelling has qualified for PPR at some point during the individual's point of ownership, the final 18 months always qualify for PPR relief even if the dwelling was no longer the individual's only or main residence.  The Chancellor has announced that from April 2020, this period will be reduced from 18 months to 9 months.

Non-resident capital gains
Prior to the Autumn Budget, non-UK resident persons were only liable to capital gains tax in respect of gains accruing on the disposal of UK residential property.  From 6 April 2019 non-UK residents will become subject to tax on capital gains made on disposals of all UK "immovable property" and also on other assets deriving at least 75% of their value from UK land (e.g. the sale of shares in a company deriving at least 75% of its value from UK land, except if the land is used in the company’s trade).

Non-UK resident companies’ income from UK property, and capital gains made on UK residential property, will become be subject to corporation tax from April 2020.

Trusts ceasing to be UK resident
Currently if a trust ceases to be a UK resident trust, there is a CGT exit charge on the trust – the trust assets are treated as being disposed of at market value and taxed accordingly.  This CGT exit charge, for a trust becoming non-UK resident after 5 April 2019 may be paid over 6 years, with interest, if it becomes resident in another EU or EEA states, provided its assets continue to be used for an economically significant activity.

Entrepreneurs' Relief

Additional test in respect of an individual's ‘Personal Company
The Autumn Budget has added two new tests to the definition of an individual's 'personal company'. These new tests require the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met (in addition to the existing tests) throughout the specified period in order for relief to be due. The additional tests are to apply immediately and so will impact individuals who realise gains on disposals of shares in a company on or after 29 October 2018.

Minimum qualifying period
The government will increase the minimum period throughout which certain conditions must be met to qualify for Entrepreneurs' Relief from one year to two years.  This will take effect for disposals on or after 6 April 2019 except where a business ceased before 29 October 2018, in which case the existing one year qualifying period will apply.

Income Tax

Personal allowance and higher rate threshold

From 1 April 2019, the rate at which people start paying income tax - the personal allowance - will increase from £11,500 to £12,500.

The point at which individuals will pay the higher rate of tax on their taxable income will increase from £46,350 to £50,000.

These thresholds will remain at this level in 2020-21 and then increase in line with inflation.

Inheritance Tax

Changes to residence nil rate band

Very minor technical changes are made to ensure that:

  • the value of any part of a residence that is inherited by a spouse is taken into account in determining a person's transferable residential nil rate band; and
  • where a residence was a gift with reservation it will only be treated as being inherited by a direct descendant if the property became immediately comprised in the direct descendant's estate as a result of the original gift.

These changes will have effect for deaths on or after 29 October 2018.

Trusts settlement definition
The legislation will confirm that additions of assets by UK-domiciled (or deemed domiciled) individuals to trusts made when they were non-domiciled are not excluded property.

This will apply to IHT charges arising on or after the date on which the Finance Bill 2019-20 receives Royal Assent.

Stamp Duty Land Tax

First-time buyers relief

The government will extend first-time buyers relief to include qualifying shared ownership property purchases, whether or not the purchaser elects to pay stamp duty land tax on the market value of the property.

The first £300,000 of an initial share purchased will not be liable to stamp duty.  The remainder of the initial share will be chargeable at 5% on amounts over £300,000.  The relief will not apply to purchases of property valued over £500,000.

This change will apply to relevant transactions with an effective date on or after 29 October 2018 and will be backdated to 22 November 2017.

The government will publish a consultation in January 2019 on a stamp duty land tax surcharge of 1% for non-residents buying residential property in England and Northern Ireland.

Rates for additional dwellings
This measure extends the period from three months to one year to reclaim higher rates for additional dwellings from the day individuals sell their old home.

Secondly, although HMRC have taken the view that the higher rates for additional dwellings legislation clearly applies to all purchases of undivided shares in land, the main schedule will be amended to make it clearer that a "major interest" in a dwelling includes an undivided share in a dwelling for the purpose of the higher rates for additional dwellings.

Both changes will take effect from 29 October 2018. The time limit changes will apply where the effective date of sale of the old home is on or after that date.

Income Tax, Capital Gains Tax and Inheritance Tax

Where an individual, trustee or other is liable to income tax, capital gains tax (CGT) or inheritance tax (IHT) and they have made an error in terms of reporting/calculating offshore income, gains or chargeable transfers, HMRC have a certain period of time in which to carry out an assessment of tax.

Where these errors are non-deliberate the time limit will increase to 12 years for income tax, CGT and IHT.

Where a taxpayer has sought to deliberately evade tax, the time limit will remain 20 years.

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