The Chancellor, Phillip Hammond, delivered his latest budget on Monday 29th October, and now that the dust has settled we can give you our version of events. Billed as an end to austerity, there were certainly some good points for businesses and individuals. Naturally there were also a few less palatable points, but overall the budget was positive for most of our clients.
Impacts on Business
Annual Investment Allowance (“AIA”): This is the amount on which 100% capital allowances can be claimed for any business. From 01 January 2019, this amount increases from £200,000 to £1M for a period of two years. This will really assist clients who need to invest in large items of capital equipment. Because the implementation date is not until January 2019, it is vital that you seek advice if capital expenditure is imminent. By delaying purchases for a few months could be highly beneficial from a tax perspective.
Business Rates: The business rates paid by pubs, restaurants and shops will be reduced by a third for two years, where the rateable values of the properties is £51,000 or less. This is great news for our clients in this sector. This reduction is not going to be applied to larger businesses, which may result in the failure of further high street chains. Whilst unfortunate for the owners and employees of the big companies, this move could really do a lot to boost the small retail sector.
IR35 & Personal Service Companies: Proposed changes to these regulations have been delayed by a year and will now come into effect on 01 April 2020. These changes are hugely significant for companies which will be caught by the new rules. The new rules will affect the bulk of PSC clients, such as those providing services to the large financial institutions. We would recommend that no particular action is taken at this early stage, and simply to watch this as it develops. But be aware: as things stand, the favourable treatment that many companies receive could be coming to an end.
Entrepreneurs Relief: this is the beneficial rate of Capital Gains Tax which is applied when a business is sold. The holding period for the shares has been increased from one year to two years, and addition the relief will only be given to fully participating shares. If any business owners are currently in the process of selling their relatively new business or the company has non-voting shares, we would strongly recommend that advice is sought urgently.
Capital Allowances Special Rate: This is decreasing from 8% pa to 6% pa from April 2019.
The Special Rate rules apply to assets as cars with high CO2 emissions and to certain other unusual classes of assets. This is not a big deal for most of our clients, but it does now mean that full tax relief on such assets is not achieved for at least sixty years. Very different from the full tax relief under AIA which is achieved in one year.
Personal Allowance: The tax-free personal allowance will increase from £11,850 to £12,500 on 06 April 2019. For basic rate taxpayers, this will save £130 per annum.
Higher Rate Tax Threshold: The threshold is being increased from £45,000 to £50,000 from 06 April 2019. For someone currently earning £50,000, this creates an additional tax saving of £1,000 per annum.
Capital Gains Tax Annual Allowance: The amount of tax free capital gains in any year will increase from £11,700 to £12,000 per annum in April 2019. Welcome, but not really much of a saving.
Principal Private Residence Relief: Under the current regime, no capital gains tax accrues if you sell your family within eighteen months of moving out. From April 2020, this “grace” period will be reduced from eighteen months to nine months. This change will particularly affect clients who moved out of their family home and perhaps rented it out without selling. The impact of this is hard to compute, but in some instances this will be significant.
Loss of Lettings Relief: Lettings relief currently exempts the first £40,000 of any capital gain on any house which was formerly the PPR of an individual. This relief is being removed from April 2020. In most circumstances, this change will add up to £11,200 to the CGT bill on disposal.
The ramifications of these last two items could have far reaching effects. Since the changes are delayed until 2020, there may be some off-loading of properties in order to avoid the additional tax. This in turn could trigger a house price drop if the market becomes saturated with properties for sale. That could result in sellers getting much less for their properties just to avoid tax. Watch this space.
We strongly advise you to seek appropriate advice before taking action on any of the points listed above.
If you are in any doubt, please call us for clarification.
About us: Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA FCA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT. Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK. Please see our website www.leggateassociates.co.uk or follow @LeggateAssoc on Twitter for occasional updates.
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