Budget 2018: Comment from St James's Place Wealth Management
Chancellor Philip Hammond’s Budget delivered a number of expensive spending pledges and brought forward headline-grabbing Income Tax cuts, whilst leaving him room for manoeuvre in the event of a Brexit ’no deal’.
Chancellor Philip Hammond has delivered his Budget, pledging that the “era of austerity is finally coming to an end”.
It was reassuring there were no major taxation surprises, with many of the proposals subject to consultation.
The Budget delivers the government’s earlier commitment to increase the Personal Allowance to £12,500 and higher rate threshold to £50,000 by bringing it forward one year to April 2019 (excluding non-savings, non-dividend income in Scotland: the Scottish Budget is due to be published on 12 December 2018).
The Capital Gains Tax annual exemption will increase to £12,000.
There will be consultation to better target Private Residence Relief at owner-occupiers from April 2020.
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.
An enjoyable retirement should be a reward for the “hard work of the British people” and – contrary to the variety of doom-laden threats to tax-relievable retirement planning – there were no changes to the rates of tax relief, to the Annual Allowance, or to tax-free cash. The only change to pensions was a marginally higher than expected increase to the Lifetime Allowance to £1,055,000. (Legislation for an increase in line with September’s CPI of 2.4% would have meant an increase to £1,054,800.)
The messages for retirement planning remain unchanged – maximise tax-relievable contributions whilst they are available.
There were no changes to ISA limits. Junior ISA and Child Trust Fund subscriptions will increase by CPI from 6 April 2019 to £4,368.
From the perspective of the tax-advantaged products (EIS/VCT/BR), there were no significant changes announced in the Budget, which was widely expected following on the back of several changes in the Autumn Budget 2017. Hence, the generous tax reliefs remain in place to support investment in small growth businesses.
However, it was announced that a new “knowledge intensive” EIS fund will be available from April 2020. The expected main features are that:
- At least 80% of the funds raised will need to be invested in “knowledge intensive” companies within two years.
- At least 50% of the funds raised will need to be invested within 12 months of the fund closing.
- Uninvested money must be held in cash.
Tax relief will not be provided at the point of subscription, but instead relief can be carried back to the tax year before the date the fund closes.
Note: to qualify as a “knowledge intensive” company, the business must have fewer than 500 full-time equivalent employees when the shares are issued and must either:
- Be carrying out work to create intellectual property and expect the majority of the business to come from this within ten years; or
- Have 20% of employees carrying out research for at least three years from the date of investment – these employees must be in a role that requires a relevant masters or higher degree.
From 6 April 2019, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months. Immediately from the Budget day of 29 October 2018, in addition to the existing requirements to hold at least 5% of the share capital and voting rights in a trading company, shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief.
Overall it is reassuring there have been no major taxation changes; although it is worth noting that if the economic outlook changes, the Spring Statement may be upgraded to a full fiscal event.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief depends upon individual circumstances.