The Autumn Budget 2018 was announced to the UK just a few weeks ago, and it covered a wide range of topics. The Budget can actually have a significant effect on large groups of taxpayers – and not always those who you’d typically expect to be affected. Below, I will explain who I believe the Autumn Budget Statement winners and losers are, and what the UK Budget 2018 means for my clients.
Autumn Budget 2018 – The Winners, And The Losers
Annual investment Allowance
The annual investment allowance is to be increased temporarily from £200,000 to £1m for expenditure between 1st January 2019 to 31st December 2020. Be careful, though: where a business does not have a December year-end it will typically have a three-month period in which only £50,000 of expenditure will be covered by the allowance and if it overlooks this limit HMRC may allege this was a deliberate mistake with penalty implications.
Winners: those thinking of investing a large sum in upgrading the IT and other equipment used in their businesses over the next two years.
A New Structures And Buildings Allowance
It’s been many years since we had industrial and agricultural buildings allowances (“IBA’s”, remember them?!)
The Budget announced a new structures and buildings allowance (“SBA”) to provide relief for qualifying capital expenditure on new non-residential structures and buildings. Expenditure on office accommodation (not within a dwelling) will qualify but expenditure on land or residential buildings will not. The relief will be available at 2% on a straight-line basis for expenditure under contracts for physical construction works entered into on or after 29 October 2018. The SBA will permit writing off the cost of otherwise non-tax allowable buildings over a 50-year period. To pay for this allowance the capital allowances special rate on qualifying plant and machinery will be reduced from 8% to 6%.
Winners: those constructing or adapting non-residential buildings and structures for their business.
Losers: those claiming special rate capital allowances such as on certain building fixtures or integral features of buildings, such as electrical systems (wiring), lighting, heating or ventilation systems; long life assets – equipment with an expected business life of 25 years or more; and cars with high CO2 emissions.
Costs Of Altering Land For Installing Plant
The Finance Act 2019 will clarify the scope of the relief given by the Capital Allowances Act 2001 for altering land in connection with qualifying expenditure on plant and machinery. This is intended to put beyond doubt that land alteration expenditure can qualify for plant and machinery capital allowances but only where the plant or machinery itself qualifies for capital allowances. This will be effective from 29 October 2018.
Non-UK Resident CGT
From 6 April 2019 Non-Resident CGT (“NRCGT”) will apply to disposals of all UK land and property and not just residential property and it will also apply to indirect disposals by persons holding 25% or more of a property rich entity which derives 75% or more of its gross asset value from UK land. ATED-related Capital Gains Tax will be abolished. All non-UK resident companies will be liable to corporation tax rather than CGT on gains (see below).
Losers: non-UK resident owners of non-residential UK properties whether owning directly or through land rich companies can no longer escape UK CGT.
UK Property Income Of Non-UK Resident Companies
Non-UK resident companies are currently subject to income tax on their UK property income but the Finance Act 2019 will make non-UK resident companies that carry on a UK property business or have other UK property income or gains pay corporation tax instead.
Draft legislation was published on 6 July 2018. Revised legislation was published in the Budget and a targeted anti-avoidance rule was introduced from 29 October 2018 with the main changes having effect from 6 April 2020.
View the draft legislation here.
Capital Gains Tax
From April 2020 the lettings relief (which provides up to £40,000 of relief (£80,000 for a couple) to those who let out a property that is, or has been in the past, their main residence) will only be available where the owner of the property is in shared occupancy with the tenant.
Under the final period exemption for principal private residence relief taxpayers currently do not have to pay CGT on capital gains made in the final 18 months of ownership, even if they are not an owner-occupier during that period.
However, HMRC have spotted that the 18 month period means that the relief can in practice accrue on two properties (an unsold one and a new one) simultaneously which it thinks is unfair. From April 2020, the exemption will be reduced from 18 months to 9 months to make this harder. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home (it was 36 months for everyone not too long ago).
Losers: those who move home frequently and claim the exemption from CGT for main residences.
IR35: Off-Payroll Working In The Private Sector
Starting in April 2020, the organisation, agency or other third party in the private sector engaging an individual worker through their own personal service company (PSC) will be responsible for operating the off-payroll working rules. This follows the change in April 2017, in the public sector which moved responsibility for determining whether the rules apply from the individual to the public sector body engaging the worker through their PSC. Red Book para 3.8 states:
3.8 Off-payroll working in the private sector – To help people comply with the existing rules and bring private sector organisations in line with public-sector bodies and agencies, the government will reform the off-payroll working rules (known as IR35) in the private sector. This follows consultation and the roll-out of reform in the public sector. Responsibility for operating the off-payroll working rules will move from individuals to the organisation, agency or other third party engaging the worker. To give people and businesses time to prepare, this change will not be introduced until April 2020. Small organisations will be exempt, minimising administrative burdens for the vast majority of engagers, and HMRC will provide support and guidance to medium and large organisations ahead of implementation
Where clients are small private sector organisations, PSCs will continue to be responsible for applying the current IR35 rules. However for anyone supplying their services to large and medium sized businesses as a contractor enormous red-tape and bureaucracy looms together with the prospect of disputes over the correct tax treatment of the services supplied and the potential for HMRC to challenge arrangements that they don’t like.
Losers: self-employed consultants and contractors who supply their services to large and medium -sized businesses.
Stamp Duty Land Tax (SDLT) And First-Time Buyer’s Relief
First-time buyer’s relief in England and Northern Ireland has been extended so that all qualifying shared ownership property purchasers can benefit, whether or not the purchaser elects to pay SDLT on the market value of the property. This change will apply from 29 October 2018, and will also be backdated to 22 November 2017 so that those eligible who have not previously claimed first-time buyers relief will be able to amend their return to claim a refund.
Winners: first-time buyers of shared ownership properties.
Consultation On SDLT Charge For Non-Residents
The government will publish a consultation in January 2019 on an SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland. See my thoughts on this measure here.
Losers: non-UK resident investors in UK residential property and the developers who rely on them to pre-fund their projects.
Stamp Duty And SDRT: Transfers To A Connected Company
A new market value rule applies from 29 October 2018 to the transfer of listed securities to a connected company. This applies where money is paid or there is nil consideration or where the consideration is other than money. The rule is aimed at “contrived” arrangements involving the transfer of listed shares to connected companies to minimise stamp taxes on shares liability on the acquisition of high-value share portfolios. See the draft legislation here.
Losers: corporate deal makers acquiring listed shares who will find it more difficult not to pay stamp duty.
Should you require advice on whether the Budget 2018 affects your tax affairs, click here to instruct Patrick Cannon, qualified SDLT adviser and specialist tax barrister, today.