Last week Chancellor Philip Hammond presented the UK’s first Autumn Budget in 21 years.
As budgets go it was not jam packed full of surprises and unlike George Osborne Philip Hammond is not one for pulling the proverbial rabbit out of the hat. Nevertheless, it was not all bad news – especially for anyone about to become a first-time-buyer. In the first part of this series, we covered the key tax implications for personal and business tax. In this part we look at employment, capital and other taxes.
Following earlier consultation the following changes have been made.
Concessionary overseas scale rates
The government has announced that the existing concessionary travel and subsistence overseas scale rates will be placed on a statutory basis from 6 April 2019, to provide clarity and certainty. Employers will only be asked to ensure that employees are undertaking qualifying travel.
Also from April 2019, employers will no longer be required to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. It will not apply to amounts agreed under bespoke scale rates or industry wide rates.
Improved employee expense guidance
The Chancellor has committed HMRC to work with external stakeholders to improve guidance on employee expenses, particularly on travel and subsistence and the claims process for tax relief.
There will be a consultation in 2018 into the scope for extending tax relief currently available to employees and the self-employed for work-related training costs.
Changes to termination payments
Previously announced changes to align the rules for tax and employer NICs by making an employer liable to pay Class 1A NICs on any part of a termination payment that exceeds the £30,000 threshold have been postponed by one year to 2019.
Non-contractual Payments in Lieu of Notice (PILONs)
The changes to the treatment of PILONs for income tax and Class 1 NICs will still apply from April 2018. Currently ‘non-contractual’ PILONs may be treated as part of a termination payment and therefore exempt from income tax up to the £30,000 threshold and not subject to any NICs.
From April 2018 those who have previously worked aboard as part of their employment, who have their employment contract terminated on or after 6 April 2018 and are UK resident in the tax year in which their employment is terminated will not be eligible for foreign service relief on their termination payments.
Employer provided cars
Most cars are taxed by reference to bands of CO2 emissions. Currently there is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car. While the scale of charges for car benefits is announced well in advance the Chancellor still made some announcements.
CO2 emissions figure up 50gm/km
The current 9% rate for cars with CO2 emissions up to 50gm/km, or which have neither a CO2 emissions figure nor an engine cylinder capacity (and which cannot produce CO2 emissions in any circumstances by being driven), will be increased to 13% April 18, and then to 16% in April 19
For other bands of CO2 emissions there will generally be a 2% increase in the percentage applied by each band from 6 April 2018. For 2019/20 the rates will increase by a further 3%.
Hammond announced he will increase the diesel supplement from 3% to 4% with effect from 6 April 2018. It will apply to all diesel cars registered from 1 January 1998 that do not meet the Real Driving Emissions Step 2 (RDE2) standards.
The diesel supplement does not apply to hybrid cars.
CGT annual exemption
The current CGT £11,300 annual exemption will be increased to £11,700 for 2018/19.
Capital gains tax (CGT) rates
The current rates of CGT are:
- 10%, on any income tax basic rate band is available
- and 20% thereafter
- Higher rates of 18% and 28% apply for certain gains. These are mainly chargeable gains on residential properties except for any element that qualifies for private residence relief.
Entrepreneurs Relief (ER) – relief after dilution of holdings
The government will consult on how access to ER might be given to those whose holding in their company is reduced below the normal 5% qualifying level due to raising funds for commercial purposes by means of issues of new shares.
It is considered that allowing ER in these circumstances would incentivise entrepreneurs to remain involved in their businesss after receiving external investment.
CGT payment window
The proposal that capital gains tax would have to be paid within 30 days of the sale of a residential property is to be deferred until April 2020.
Extending the taxation of gains made by non-residents
From April 2019, tax will be charged on gains made by non-residents on the disposal of all types of UK immovable property.
This extends existing rules that apply only to residential property to encompass disposals of immovable property by non-residents in two key ways:
- all non-resident persons’ gains on disposals of interests in UK land will be chargeable and
- indirect disposals of UK land will be chargeable.
Inheritance tax (IHT)
Nil rate band
The £325,000 IHT nil rate band remains frozen at its 2009 level amount until April 2021.
IHT residence nil rate band
The additional nil rate band available for deaths on or after 6 April 2017, where an interest in a residence passes to direct descendants. Is to continue rising from £100,000 (this tax year) to reach £175,000 in 2020/21.
For many married couples and registered civil partners the relief is effectively doubled as each individual has a main nil rate band and each will potentially benefit from the residence nil rate band.
Where a person died before 6 April 2017 their estate did not qualify for the relief. A surviving spouse may be entitled to an increase in the residence nil rate band if the spouse who died earlier had not used, or was not entitled to use, their full residence nil rate band.
The residence nil rate band may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the residence nil rate band, are passed on death to direct descendants.
And all the rest
Enterprise Investment Schemes
To encourage more investment in knowledge-intensive companies under the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) the government will:
- Double the limit on the amount an individual may invest under the EIS in a tax year to £2 million, provided any amount over £1 million is invested in one or more knowledge-intensive companies.
- Raise the annual investment limit for knowledge-intensive companies under the EIS and from VCTs to £10 million from the current limit of £5 million.
- The lifetime limit will remain the same at £20 million, and
- Allow knowledge-intensive companies to use the date when their annual turnover first exceeds £200,000 in determining the start of the initial investing period under the permitted maximum age rules, instead of the date of the first commercial sale.
Changes will have effect from 6 April 2018.
The government will legislate to limit the application of an anti-abuse rule relating to mergers of VCTs. The rule restricts relief for investors who sell shares in a VCT and subscribe for new shares in another VCT within a six-month period, where those VCTs merge.
This rule will no longer apply if those VCTs merge more than two years after the subscription, or do so only for commercial reasons. The change will have effect for VCT subscriptions made on or after 6 April 2014.
The government will also legislate to move VCTs towards higher risk investments by:
- Removing certain ‘grandfathering’, with effect on and after 6 April 2018.
- Requiring 30% of funds raised in an accounting period to be invested in qualifying holdings within 12 months after the end of the accounting period, with effect on and after 6 April 2018.
- Increasing the proportion of VCT funds that must be held in qualifying holdings to 80%, with effect for accounting periods beginning on and after 6 April 2019.
- Increasing the time to reinvest the proceeds on disposal of qualifying holdings from six months to 12 months for disposals on or after 6 April 2019.
- Introducing a new anti-abuse rule to prevent loans being used to preserve and return equity capital to investors, with effect on and after Royal Assent.
Vehicle Excise Duty (VED)
A diesel supplement will apply to new diesel vehicles from 1 April 2018 so that these cars will go up by one VED band in their First-Year Rate. This will apply to any diesel car that is not certified to the Real Driving Emissions 2 (RDE2) standard.
Taxation of trusts
2018 will see the publication of a consultation on how to make the taxation of trusts simpler, fairer and more transparent.
Compliance and HMRC
HMRC will invest £155m in additional resources and new technology to help bring in £2.3bn of additional tax revenues by allowing HMRC to:
- Transform their approach to tackling the hidden economy through new technology.
- Tackle those who are engaging in marketed tax avoidance schemes.
- Enhance efforts to tackle the enablers of tax fraud and hold intermediaries accountable for the services they provide using the Corporate Criminal Offence.
- Increase their ability to tackle non-compliance among mid-size businesses and wealthy individuals.
- Recover greater amounts of tax debt including through a new taskforce to specifically tackle tax debts more than nine months old.
Rent a room relief
A call for evidence will be published early in December 2017. Its aim is to establish whether usage of rent a room relief is consistent with the original policy rationale to support longer-term lettings.
Simplification of Gift Aid donor benefit rules
Government intends to simplify the donor benefit rules that apply to charities that claim Gift Aid.
The current mix of monetary and percentage thresholds that charities have to consider will be replaced by two percentage thresholds:
- the benefit threshold for the first £100 of the donation will remain at 25% of the amount of the donation, and
- for larger donations, charities will be able to offer an additional benefit to donors up to 5% of the amount of the donation that exceeds £100.
The total value of the benefit that a donor will be able to receive remains at £2,500. Furthermore, four extra statutory concessions that currently operate in relation to the donor benefit rules will also be brought into law.
The changes will have effect on and after 6 April 2019.
The latest business rates revaluation took effect in England from April 2017 and resulted in significant changes to the rates charges that businesses pay. In the light of the recent rise in inflation, the government has decided to bring forward the planned switch in indexation from RPI to CPI to 1 April 2018.
It has also decided to legislate retrospectively to address the so-called ‘staircase tax’. Affected businesses will be able to ask the Valuation Office Agency to recalculate valuations so that bills are based on previous practice
Note – Business rates have been devolved to Scotland, Northern Ireland and Wales backdated to April 2010.
Stamp Duty Land Tax (SDLT)
- First time buyers paying between £300,000 and £500,000 will pay SDLT at 5% on the amount of the purchase price in excess of £300,000.
- First time buyers purchasing property for more than £500,000 will not be entitled to any relief and will pay SDLT at the normal rates.
- The new rules apply to transactions with an effective date (usually the date of completion) on or after 22 November 2017.
Note – This measure will not apply in Scotland as this is a devolved tax. This measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Wales.
Higher rate SDLT: minor changes
Some small, but important, changes were announced to additional 3% higher SDLT charge on additional residential properties purchased on or after 1 April 2016.
For transactions on or after 22 November 2017, relief from the extra 3% will be given in certain cases including where:
- a divorce related court order prevents someone from disposing of their interest in a main residence
- a spouse or civil partner buys property from another spouse or civil partner
- a deputy buys property for a child subject to the Court of Protection and
- a purchaser adds to their interest in their current main residence.
The changes also counteract abuse of the relief when someone who changes main residence retains an interest in their former main residence.
Changes to the filing and payment process
- With effect of 1 March 2019 the SDLT filing and payment window is to reduce from its current 30 days to 14 days.
- At the same time the SDLT return is to be improved to make compliance with the new time limit easier.
Welsh Land Transaction Tax (LTT)
From the 1 April 2018 Wales will abolish SDLT and replace it a Land Transaction Tax. The principles and rates of the tax will be like SDLT.
In part one we cover personal and business tax implications.
Brian Palmer is the tax policy adviser for AAT.