Here we look at the Chancellor’s announcements in this year’s Autumn Budget affecting private client.
Allowances Update
Pension Lifetime Allowance is increased from £1m to £1.03m and the Capital Gains Tax Annual Exemption increased from £11,300 to £11,700, both in line with inflation.
The ISA subscription limit will remain the same at £20,000 with the junior ISA and child trust funds limit increased to £4,260 from 6 April 2018.
The 0% starting rate for savings income will also remain the same at £5,000.
EIS/VCT investments must have growth objective & risk to capital
Moving forwards, certain companies and individuals using the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) will need to meet an additional condition to obtain relief. The condition was added following the budget to exclude tax motivated investments where the tax relief is for the benefit of the investor with limited or no risk to the investor’s capital (original investment).
The condition relies upon taking a reasonable view as to whether the investment has been structured to make a low risk return. In doing so, the individual forming the opinion should decide whether the company has objectives to grow and develop over the long-term and whether there is a significant risk that there could be a loss of capital to the investor.
First Time Buyers stamp duty
Further to Theresa May’s declaration of her ambition for UK homes to be more affordable for the younger generation, the Stamp Duty Land Tax (SDLT) threshold for first time buyers has been increased to £300,000 with relief available for first time buyers purchasing a property valued under £500,000.
The intended outcome of this measure is to ensure that the average first time buyer (outside of London) will not pay SDLT and as part of a wider picture, the relief will assist a million first time buyers to purchase their first home.
In practice, the relief is available where a sole or all parties in the purchase are first time buyers, in a situation where a couple are purchasing a property and one is a first-time buyer and the other not, relief will not be available. The Office of Budget Responsibility also expects that the saving will be partly offset by a consequential increase in the selling price of such houses.
Withdrawal of Foreign Service Relief
Following a recent consultation, relief for foreign service previously given on termination payments has been abolished. This is projected to provide the government with significant funds to address the additional spending detailed in the budget.
Previously where an individual had spent a proportion or the majority of their working time overseas, the element of overseas work would have benefitted from relief, and in some cases the amount of time overseas would result in a full exemption. However, following the withdrawal of the relief there will be added emphasis on tax planning and analysis of tax treaties where there is the appropriate article in the relevant tax treaty.
There has also been an overhaul in the way in which termination payments are to be treated for income tax and national insurance purposes.
Moving forwards there will be no differentiation between contractual and non-contractual Payments In Lieu Of Notice and they will be subject to national insurance and income tax in full. Following the changes, it is important that all employers understand how this could impact them and in particular assess the impact it could have on them from a cost perspective.
Trust Consultation
One area not covered in any great detail during the recent budget was that of Trusts. However, it was confirmed that a consultation is expected to be published in 2018 with a view to simplifying the taxation of trusts with added emphasis on fairness and transparency.
CGT dilution of shares
As announced in the budget, plans are afoot to widen the relief available to entrepreneurs where their shareholding in their company is reduced to below the 5% mark as a result of the company raising additional funds by issuing new shares. This would usually result in the non-availability of entrepreneurs’ relief, however the government are keen to incentivise entrepreneurs to remain involved whilst not deterring companies from raising additional capital by removing this obstacle.
Certificates of tax deposit closure
Following the 23rd November 2017, no new certificates of tax deposit can be purchased. There will be a transitional period up to 23rd November 2023 where existing certificates will be honoured, however after this date the certificates remaining in circulation will be subject to a request to be returned to HM Revenue & Customs for a refund.
To discuss how the changes might affect you, please do not hesitate to contact us.
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