A SIMPLE GUIDE TO THE BUDGET 2018

This is a basic guide. It is an introduction only and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.

The message from the Chancellor was that ‘this is a budget that shows the British people that the hard work is paying off.’

You can read the individual measures and details of some of the numerous consultations below.

Rates and allowances

2019/20 2018/19
£ £
Income tax rates – (non-dividend income)
0% lower rate tax – savings rate only Up to 5,000 Up to 5,000
20% basic rate tax 12,501 to 50,000 11,851 to 46,350
40% higher rate tax 50,001 to 150,000 46,351 to 150,000
45% additional rate tax Above 150,000 Above 150,000
Scottish Income tax rates – (non-dividend income)
19% starting rate tax See below 11,850 to 13,850
20% basic rate tax 13,851 to 24,000
21% intermediate rate tax 24,001 to 43,430
41% higher rate tax 43,431 to 150,000
46% top rate Above 150,000
Personal allowance
Personal allowance 12,500 11,850

The Scottish government budget will take place on 12 December 2018.

The Welsh government final budget will be debated on 18 December 2018.

Dividend allowance

The tax-free dividend allowance is unchanged at £2,000.

Stamp Duty Land Tax: relief for first time buyers

The chancellor announced relief up to the value of £500,000 back-dating from 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. This measure does not apply in Scotland or Wales

Corporation tax

The corporation tax rate will remain at 19%, but it is set to drop to 17% from April 2020.

Annual investment allowance

Companies will be able to claim £1m as AIA for expenditure incurred from 1 January 2019 to 31 December 2020, up from £200,000.

 

Structure and Building allowance

A relief of 2% will be available for expenditure on non-residential buildings, for which construction contracts are entered into after 29 October 2018. Qualifying costs relate to construction, improvement, conversion, including demolition costs and land alterations costs.

CGT letting relief and final period exemption

From April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be reduced from 18 months to 9 months.

Making tax digital

There were no announcements on MTD. HMRC is aiming to introduce MTD for VAT in April 2019.

 

VAT

2019/20 2018/19
£ £
VAT
Standard rate 20% 20%
Registration threshold 85,000 85,000
Deregistration threshold 83,000 83,000

VAT thresholds as previously announced will remain unchanged.

Phoenix and insolvent companies

From 6 April 2020, the government will change the rules when a business enters insolvency HMRC will be a preferential creditor. It has also announced that directors and other persons involved in tax avoidance, evasion or phoenixism will be jointly and severally liable for company tax liabilities.

 

Business rates

The threshold for Small Business Rate Relief (SBRR) has been raised to include properties with a rateable value of up to £51,000. The Treasury has announced that the bills of those below this threshold will be reduced by a third, starting from April 2019 for a period of two years.

Apprenticeships

SMEs will now only pay 5% towards the cost of an apprentice’s training costs, down from the previous 10% co-investment rate. This change is expected to come into effect from April 2019.

Taxation of trusts

The taxation of trusts will be subject to a consultation and review.

R&D

From 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.

IHT

The Nil-rate band remains at £325,000. The residence nil-rate band for deaths in the following tax years will be:

  • £100,000 in 2017 to 2018     £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020     £175,000 in 2020 to 2021

Interest relief for landlords

Landlords will be able to obtain relief as follows:

Finance cost allowed in full                Finance cost allowed at basic rate

Year to 5 April 2018                75%                                                                 25%

Year to 5 April 2019                50%                                                                 50%

Year to 5 April 2020                25%                                                                 75%

Year to 5 April 2021                0%                                                                   100%

 

IR35
The chancellor announced the extension of IR35 to the public sector. It has been recognised with issues with CEST and recent cases that changes require further thought with a resulting implementation date of April 2020. The reform will apply to large and medium sized businesses.

ATED

From 1 April 2018 the charges for the annual tax on enveloped dwellings (ATED) will be increased by 3%. Returns for 2018/19 are to be filed electronically.

2019/20 2017/18
£ £
Annual Tax on Enveloped Dwellings (ATED)
More than £0.5m but not more than £1m 3,500 3,600
More than £1m but not more than £2m 7,050 7,250
More than £2m but not more than £5m 23,550 24,250
More than £5m but not more than £10m 54,950 56,550
More than £10m but not more than £20m 110,100 113,400
More than £20m 220,350 226,950

Employment allowance reform

From April 2020, this will be limited to employers with an employer NICs bill below £100,000 in the previous tax year.

Entrepreneurs’ Relief

Legislation will be introduced in Finance Bill 2018-19 for disposal made on or after 6 April 2019, to increases this minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs Relief from one year to two years.

2017/18 2018/19 2019/20
Income tax rates not including Scotland – (non-dividend income) £ £ £
0% – starting rate for savings only  – note 1     As announced or unchanged
20% basic rate tax Up to 5,000  Up to 5,000 Up to 5,000
40% higher rate tax 11,501 – 45,000  11,851 – 46,350 12,501 – 50,000
45% additional rate tax 45,001  – 150,000  46,351 – 150,000 50,001 – 150,000
1  If an individual’s taxable non-savings income exceeds the starting rate limit, then the starting rate for savings will not be available for savings income Above 150,000  Above 150,000 Above 150,000
Scottish rates of income tax                                                        
19% – starting rate Budget date 12/12/2018
20% basic rate tax 11,850 – 13,850
21% intermediate rate tax 13,851 – 24,000
41% higher rate tax 24,001 – 43,430
46% top rate 43,431 – 150,000
Notes on changes to the Welsh tax system from 6 April 2019 Above150,000 Above150,000
1 If you live in Wales, HMRC will continue to collect your Income Tax as usual.  However, for the first time, a proportion of that Income Tax will be transferred straight to the Welsh Government. It will be spent on public services in Wales.

2 From April 2019, the UK government will reduce each of the 3 rates of income tax – basic, higher and additional rate – paid by Welsh taxpayers by 10p. Each year, the Welsh Government will then decide the 3 Welsh rates of income tax, which will be added to the reduced UK rates. The combination of reduced UK rates plus the Welsh rates will determine the overall rate of income tax paid by Welsh taxpayers.

3 Personal allowance and basic rate limit is set same for 2020-21 as in 2019-20. Future increase will be indexed with the CPI.

Budget date 18/12/18
Income tax rates – (dividend income new rules from 6/4/2016)
Dividend allowance    
Dividend ordinary rate (for dividends within basic rate band) £5,000 £2,000 £2,000
Dividend upper rate (for dividends within higher rate band) 7.50% 7.50% 7.50%
Dividend additional rate (for dividends above higher rate band) 32.50% 32.50% 32.50%
Child benefit/Guardian’s allowance rates 38.10% 38.10% 38.10%
Higher rate (eldest child only) (per week)      
Other children 20.7  20.7  20.7
Guardian’s allowance 13.7  13.7  13.7
1  An income tax charge will apply to taxpayers with income exceeding £50,000 in a tax year, when child benefit is also received by them or their partner. The charge will reduce the financial benefit of receiving child benefit for those with income between £50,000 and £60,000 and remove it completely for taxpayers with income above £60,000. 16.7  17.2  17.6
Personal allowances
Personal allowance – note 1      
Dividend allowance 11,500  11,850 12,500
Maximum Married couple’s allowance for those born before 6 April 1935 – note 2 5,000  2,000 2,000
Married couple’s allowance – minimum amount 8,445  8,695 8,915
Micro entrepreneurs allowance: 3,260  3,360 3,450
Individuals making property or trading incomes below the level of the allowance would no longer need to declare or pay tax, while those whose income exceeds the allowance have the choice of simply deducting the allowance instead of calculating their exact expenses or calculating their profits in the normal manner
Income limit – note 3 Allowance- 1,000  Allowance- 1,000 Allowance- 1,000
Income limit for Married couple’s allowance- born before 6 April 1935 100,000  100,000  100,000
Blind person’s allowance 28,000  28,900  29,600
Rent-a-room relief 2,320  2,390  2,450
Transferable/shareable tax allowance for married couples and civil partners – note 4 7,500  7,500  7,500
Personal savings allowance for basic rate tax payers – note 5 1,150 1,190 1,250
Personal savings allowance for higher rate tax payers 1,000  1,000  1,000
1  From 2016-17 onwards, all individuals will be entitled to the same personal allowance, regardless of the individuals’ date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth. 500  500  500
2  This allowance is reduced by £1 for every £2 of income in excess of the income limit, but married couple’s allowance will not reduce below £3,450
3. Personal allowances are subject to the £100,000 income limit which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit, down to zero
This allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse or civil partner who is not liable to income tax; or not liable at the higher or additional rates, can transfer this amount of their unused personal allowance to their spouse or civil partner. The recipient must not be liable to income tax at the higher or additional rates.

If the couple marry or register a civil partnership, they’ll get the allowance on a pro-rata basis for the rest of that tax year. If one of them dies there is a divorce or separation, the allowance continues until the end of the tax year.

National insurance
Lower earnings limit, primary Class 1 (per week)      
Upper earnings limit, primary Class 1 (per week) 113  116 118
Apprentice upper  secondary threshold (AUST) for under 21s/ 25s 866  892 962
Primary threshold (per week) 866  892 962
Secondary threshold (per week) 157  162 166
Employment allowance (per year/employer) – Note 1 157  162 166
Employee’s primary Class 1 rate between primary threshold and upper earnings limit 3,000  3,000 3,000
Employee’s primary Class 1 rate above upper earnings limit 12%  12% 12%
Married woman’s reduced rate between primary threshold and upper earnings limit 2%  2% 2%
Married woman’s rate above upper earnings limit 5.85%  5.85% 5.85%
Employer’s secondary Class 1 rate above secondary threshold 2.00%  2.00% 2.00%
Class 2 rate (per week where profits are above small profits threshold) 13.80%  13.80% 13.80%
Class 2 small profits threshold (per year) 2.85 2.95

3.00

Special Class 2 rate for share fishermen (per week) 6,025 6,205 6,365
Special Class 2 rate for volunteer development workers 3.5  3.6 3.65
Class 3 voluntary rate (per week) 5.65  5.80 5.90
Class 4 lower profits limit 14.25  14.65 15.00
Class 4 upper profits limit 8,164  8,424 8,632
Class 4 rate between lower profits limit and upper profits limit 45,000  46,350 50,000
Class 4 rate above upper profits limit 9.00%  9.00% 9.00%
Note 1: From April 2020, this will be limited to employers with an employer NICs bill below £100,000 in the previous tax year. 2.00%  2.00% 2.00%
Pensions
Annual allowance  note 1      
Lifetime allowance 40,000 40,000 40,000
Money purchase annual allowance – note 2 1,000,000  1,030,000  1,055,000
1  The annual allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension scheme each year, for tax relief purposes. The annual allowance is currently capped at £40,000 although a lower limit of £4,000 may apply if you have already started drawing a pension. From 2016/17 the annual allowance for those earning above £150,000 is to be reduced on a tapering basis by £1 for every £2 of income, subject to a minimum allowance of £10,000 4,000  4,000  4,000
Relief’s and incentives
Enterprise Investment Scheme (EIS) – maximum – note 1      
Venture Capital Trust (VCT) – maximum 1,000,000 1,000,000 1,000,000
Enterprise Management Incentive Scheme (EMI) – employee limit up to the value of £250,000 in a 3-year period 200,000 200,000 200,000
Seed Enterprise Investment Scheme (SEIS) – maximum – note 2 250,000 250,000 250,000
Income tax relief on EIS schemes 100,000 100,000 100,000
Income tax relief on VCT schemes 30% 30% 30%
Income tax relief on SEIS schemes 30% 30% 30%
1  From 6 April 2018, the annual limit is doubled to £ 2 million, provided any amount over £ 1 million is invested in one or more ‘knowledge-intensive companies’

2  Capital gains tax reinvestment relief may also be available for investments made in 2018/19 on 50% of amount invested.

50% 50% 50%
Individual Savings Account (ISA):
ISA (NISA) annual limit  
Junior ISA investment annual limit – under 18 living in the UK 20,000 20,000 20,000
Child value of Child Trust Fund annual limit 4,128 4,260 4,368
LISA- annual limit – note 1 4,128 4,260 4,368
1 To open a Lifetime ISA you must be 18 or over but under 40. Contributions can be made until age 50. The government will add a 25% bonus to the savings, up to a maximum of £1,000 per year. The Lifetime ISA limit of £4,000 counts towards the annual ISA limit. 4,000 4,000 4,000
Capital gains tax
Rate      
– basic rate tax payer
– higher rate tax payer 10%  10%  10%
Gain on sale of residential  property 20%  20%  20%
– basic rate tax payer
– higher rate tax payer 18% 18% 18%
Annual exemptions – individuals (per year) 28% 28% 28%
Certain trusts for disabled persons (per year) 11,300 11,700 12,000
Other trusts (per year) 11,300 11,700 12,000
Entrepreneurs/Investors Relief lifetime limit 5,650 5,850 6,000
Entrepreneurs/Investors Rate 10,000,000 10,000,000 10,000,000
Chattels exemption 10% 10% 10%
Inheritance tax 6,000 6,000 6,000
Single persons nil rate band      
Single persons 40% band 1 – 325,000 1 – 325,000 1 – 325,000
Residence nil rate band (RNRB) – maximum  -note 2 over 325,000 over 325,000 over 325,000
Reduced rate – note 1 100,000 125,000 150,000
IHT Rate (for chargeable lifetime transfers) 36% 36% 36%
Married couples or civil partnerships allowance nil rate band 20% 20% 20%
Gifts to charities 650,000 650,000 650,000
Small gifts to same person Exempt Exempt Exempt
General gifts- annual exemption 250 250 250
Wedding gifts from: 3,000 3,000 3,000
Parent
Grandparent/party 5,000 5,000 5,000
Other person 2,500 2,500 2,500
Business Property Relief 1,000 1,000 1,000
Business or interest in a business and transfer if unquoted shareholdings
1  The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. 100%  100%  100%
2  The RNRB is available in respect of a main residence given away to children (including adopted, foster or stepchildren). Any unused nil rate band transfers to the deceased’s spouse or civil partner, even where death pre-dates the availability of the additional threshold.  It applies in addition to the existing nil rate band (NRB) or threshold (currently £325,000) if the individual and estate meet the qualifying conditions.
Taxation of trusts
Accumulation or discretionary trusts:      
Trust income up to £1,000 – dividend type income – Note 1
Trust income up to £1,000 – all other income 7.50% 7.50% 7.50%
Trust income over £1,000 – dividend type income – note 1 20% 20% 20%
Trust income over £1,000 – all other income 38.10% 38.10% 38.10%
Interest in possession trusts: 45% 45% 45%
Dividend type income
All other income 7.50% 7.50% 7.50%
1 Trustees do not qualify for the dividend allowance. This means trustees pay tax on all dividends depending on the tax band they fall within. 20% 20% 20%
Corporation tax
All profits and gains (excluding determination agreements and diverted profits) – note 1      
S455 tax on all loans made by close companies to participator 19% 19% 19%
From  1 April 2020 the main rate of corporation tax will be reduced to 17% 32.50% 32.50% 32.50%
Capital Allowances
Main writing down allowance (reducing balance)      
Special rate writing down allowance (reducing balance) 18% 18% 18%
Structures and Buildings allowance (SBA) – Note 1 8% 8% 6%
Motor Cars- if CO2 > 75g/km but do not exceed 110g/km (130g/km for 2017/18) NA 2% 2%
Motor Cars- if CO2 > 110g/km (130g/km for 2017/18) 18% 18% 18%
Small pool write off where WDV is £1,000 or less 8% 8% 8%
 (New and unused) CO2 emissions are 50g/km or less (75g/km 2017/18)  – (or car is electric) 100% 100% 100%
First year allowances for certain energy-saving/water efficient products-  Note 2 100% 100% 100%
Annual investment allowance (AIA) – Note 3 100% 100% 100%
Annual investment allowance 200,000 200,000

Increased to 1,000,000

1,000,000
1  From 29 October 2018, capital allowances at a rate of 2% will be available for qualifying non-residential structures and buildings on a straight-line basis. 100% 100% 100%
2  From 1 April 2020 for incorporated businesses and from 6 April 2020 for unincorporated businesses, environmental enhanced capital allowances will be abolished.
3  From 1 January 2019 the annual investment allowance will increase from £200,000 to £1m for investment made from 1 January 2019. This is temporarily increased for two years until 31 December 2020. The threshold will revert back to £200,000 from 1 January 2021.
Research and Development Tax Credit Rates
SME Rate    
Research and development SME payable credit 230%  230% 230%
Research and development expenditure credit (RDEC) scheme – 12% from 1 January 2018 14.5% 14.5% 14.5%
Film/High-end TV/ Videogames tax relief 11%  12% 12%
Open ended investment companies and authorised unit trusts 25% 25% 25%
Patent Box 20% 20% 20%
Patent box Note 1      
From 1 April 2017 patent box allows companies to elect to apply a 10% rate of corporation tax to 100% of profits from qualifying patents. 10% 10% 10%
VAT
Standard rate      
Reduced rate 20% 20% 20%
Zero rate 5% 5% 5%
Flat rate of VAT on gross turnover (For Limited Cost Trader) 0% 0% 0%
Normal scheme registration threshold 16.5% 16.5% 16.5%
Deregistration threshold 85,000 85,000 85,000
Cash accounting scheme  -maximum to join 83,000 83,000 83,000
Cash accounting scheme –  exit threshold 1,350,000 1,350,000 1,350,000
Annual accounting scheme – maximum to join 1,600,000 1,600,000 1,600,000
Annual accounting scheme – exit threshold 1,350,000 1,350,000 1,350,000
Flat rate scheme – maximum allowed to join 1,600,000 1,600,000 1,600,000
Flat rate scheme exit threshold 150,000 150,000 150,000
230,000 230,000 230,000
Annual Tax on Enveloped Dwellings (ATED)
More than £0.5m but not more than £1m        
More than £1m but not more than £2m 3,500  3,600 3,650
More than £2m but not more than £5m 7,050  7,250 7,400
More than £5m but not more than £10m 23,550  24,250 24,800
More than £10m but not more than £20m 54,450 56,550 57,900
More than £20m 109,050 113,400 116,100
218,200 226,950 232,350