B r i e f i n g. 2 9 O c t o b e r

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1 This briefing is directed at professional advisers only and it should not be distributed to, or relied upon by, retail clients. Utmost Wealth Solutions is the brand name used by a number of Utmost companies. This item is issued by Utmost Limited, Utmost Ireland dac and Utmost PanEurope dac. T e c h n i c a l S a l e s B r i e f i n g U K B U D G E T S U M M A R Y N O T E S 2 9 O c t o b e r K e y P o i n t s The Government have brought forward the delivery of their manifesto pledge to raise the Personal Allowance to 12,500 and the corresponding Higher Rate threshold to 37,500. This means an individual can earn 50,000 before they pay Higher Rate Tax. No major changes to the Inheritance Tax (IHT) regime have been announced, so that lump sum IHT solutions such as Discounted Gift Schemes and Loan Trust arrangements still remain attractive, particularly for those with large estates. A new tax, the Digital Services Tax, was announced. This tax is designed to target online digital platforms and will be levied at the rate of 2%. I n t r o d u c t i o n The Chancellor of the Exchequer, Phillip Hammond (self-proclaimed Fiscal Phil), delivered his second autumn budget against the backdrop of ongoing Brexit negotiations and persistent uncertainty. Very little was known about the content of the budget prior to the speech with even the various rates for the new tax year not being published in advance. However, this looks to be the norm now and holding the budget in autumn is favoured by many tax planners as it allows the changes to be understood well before the start of the new tax year. It also allows time for the Finance Bill to be scrutinised by the Houses prior to the new tax year. 1 6

2 The key points for 2018/19 are: T E C H N I C A L B R I E F I N G P e r s o n a l I n c o m e Ta x Personal Allowances, Rates and Thresholds The Chancellor brought forward the delivery of the Conservative manifesto pledge made in 2015 to take everyone who earns less than 12,500 out of the income tax net. Therefore; (i) the income tax personal allowance is to increase by 650, taking it to 12,500 for 2019/20 (from 11,850 in 2018/19). ii) the basic rate limit is to increase to 37,500 for 2019/20 (from 34,500 in 2018/19). Individuals who have adjusted net income of 100,000 p.a. or more will lose their personal allowance by 1 for every 2 of income over 100,000. Where income exceeds 125,000 the entire allowance is lost. These individuals will suffer an effective tax rate of 60% for income between 100,000 and 125,000. The Dividend Allowance whereby individuals will not have to pay tax on an amount of dividend income will continue to be 2,000 for tax year 2019/20. Above the Dividend Allowance, tax is levied at 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional and trust rate). The Personal Savings Allowance will continue unchanged for 2019/20 meaning that a basic rate taxpayer will not have to pay tax on the first 1,000 of savings income received, whilst a higher rate taxpayer will not have to pay tax on the first 500 of savings income received. The married couple s allowance (only available where at least one of the spouses was born before 6 April 1935) will rise to 8,915. This allowance is given as a tax reducer at the rate of 10% and reduced by 1 for every 2 of adjusted net income that exceeds the 29,600 income limit, subject to a minimum of 3,450. The blind person s allowance will increase to 2,450 for 2019/20. The main rates of income tax will remain at 20% for basic rate taxpayers,40% for higher rate taxpayers, and 45% for additional rate taxpayers with adjusted net income in excess of 150,000 p.a. For 2019/20, the threshold for the starting rate for savings income will remain at 5,000 with a corresponding nil rate of tax. Should an individual s taxable non-savings income exceed the starting rate limit for savings income, then this is not available. For 2019/20, a spouse or civil partner who is not in receipt of married couples allowance and not liable to income tax at the higher, dividend upper or additional rates, will be entitled to transfer 1,250 of their personal allowance to their spouse or civil partner. This is providing the recipient is not subject to income tax at the higher or additional rate. This will mean that the receiving spouse/civil partner could benefit from a tax saving of 250 (I.e 1,250 at 20%). The marriage allowance may also be claimed where a spouse or civil partner has died. 2 6 For Scottish taxpayers the rates for non-savings income are set by the Scottish Parliament. HMRC will determine whether someone is deemed a Scottish taxpayer based on their main place of residence. Full details of the rates of tax and personal allowances etc. are set out in our separate Tax Summary. The only real surprise here was the bringing forward of the Conservative Party s manifesto pledge to increase the personal allowance to 12,500 and higher rate threshold to 50,000. These figures will remain frozen in 2020/21, then increase by CPI from April 2021.

3 N at i o n a l I n s u r a n c e C o n t r i b u t i o n s ( N I C s ) T E C H N I C A L B R I E F I N G The main rate of employees Class 1 NICs (between the primary threshold and the upper earnings limit) will remain at 12%, and the primary rate (above the upper earnings limit) will continue to be 2%. The employers secondary threshold will be 166 per week, and the employers rate will remain at 13.8%. The primary threshold for employees and self-employed NICs increases to 166 per week. The upper earnings limit for NICs will increase to 962 per week. For the self-employed, the rate of Class 2 contributions will be 3.00 per week. The rate of voluntary Class 3 contributions will be per week. The rate of Class 4 NICs between the lower profits limit ( 8,632) and the upper profits limit ( 50,000) will remain at 9%, and above the upper profits limit, 2%. Employers are not required to pay Class 1 secondary NICs on earnings paid up to the upper earnings limit in respect of any employee under the age of 21 or apprentices under the age 25 who are working within a government approved framework. The maintaining of the employer NIC rate at 13.8% for 2019/20 should continue to encourage employees to forego salary for commensurate employer pension contributions, particularly where an employer is prepared to feed their NIC savings into the payment. However, care is needed regarding the level of the Annual Allowance ( 40,000 for 2019/20) and its impact on salary sacrifice arrangements. Financial advisers are strongly placed to help business clients incorporate pension planning to maximise client benefits. C a p i ta l G a i n s Ta x ( C G T ) Annual exemptions to increase from 6 April 2019 to 12,000 for individuals and 6,000 for trusts. For 2019/20 the main rate for non, starting and basic rate taxpayers will be 10% and for higher, additional rate taxpayers and most trusts, 20%. These rates remain unchanged from 2018/19. These rates do not apply to capital gains on disposals of residential property (that do not qualify for private residence relief) which will remain at 18% and 28% respectively. Some changes were announced to Entrepreneurs Relief, namely; (i) that, the minimum period of ownership has been extended from 12 months to 24 months in respect of disposals on or after 6 April 2019 (with special provisions for businesses that ceased before 29 October 2018) ii) the budget adds 2 new tests to the definition of a personal company, requiring the claimant to have a 5% interest in both the distributable profits and the net assets of the company. The new tests must be met, in addition to the existing tests, throughout the specified period in order for relief to be due. The budget extends the scope of the UK s taxation of gains accruing to non-uk residents to include gains on disposals of interests in non-residential UK property. It also extends the charge on gains on disposals of interests in residential property to diversely held companies, those widely held funds not previously included, and to life assurance companies. The measure also taxes non-uk residents gains on interests in UK property rich entities (for example, selling shares in a company that derives 75% or more of its value from UK land). From April 2020, two restrictions on private residence relief (PRR) will come into force namely; i) Lettings relief (up to a maximum of 40,000) will only be available to those in shared occupancy with a tenant. ii) the final period exemption will be reduced from 18 months to 9 months. Continued lower rates of CGT when compared to income tax may still make certain investment into collectives attractive. However, much depends on the client s circumstances and the headline rates of tax should not be considered in isolation. Where dividends exceed the Dividend Allowance, or where regular switching of investments is likely to occur, the Dividend Allowance and capital gains tax annual exemption could be exhausted. Here, the use of products such as offshore bonds can still be very advantageous. 3 6

4 T E C H N I C A L B R I E F I N G I n h e r i ta n c e Ta x ( I H T ) As previously announced, the Nil Rate Band will be frozen at its current figure of 325,000 up to and including the tax year 2020/21. The Resident Nil Rate Band (RNRB) legislation remains largely unchanged and the RNRB limit will be 150,000 for 2019/20. A full briefing on the RNRB is available from our website. The budget did however, introduce two minor technical amendments to the RNRB relating to downsizing provisions and the gift with reservation rules. Clients with larger estates should consider the impact of IHT and the steps that can be taken to mitigate it. Whilst the RNRB may reduce the IHT exposure on some estates, some estates will not be able to claim this and the effect on others will be minimal. There will still be a need for tried and tested lump sum IHT solutions such as Discounted Gift Schemes and Loan Trusts, as well as appropriate life cover for the potential liability. P e n s i o n s The Lifetime Allowance will increase to 1,055,000 for 2019/20 and will continue to increase in line with CPI from now on. Transitional Lifetime Allowance protection will be available to protect those whose pension funds exceed this figure. The Annual Allowance will remain at 40,000 for 2019/20. The Money Purchase Annual Allowance will remain at 4,000. Where adjusted income exceeds 150,000 annual allowance is tapered on a 2 for 1 basis. When adjusted income reaches 210,000 annual allowance is fully tapered to 10,000. C o r p o r at i o n Ta x The main rate of corporation tax is to remain at 19% for the financial year commencing 1 April It was previously announced that the rate of corporation tax will be 17% for the financial year commencing 1 April From 6 April 2020, non-uk resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax as at present. This change will align with the end of tax year 2019 to 2020 on 5 April S ta m p D u t y L a n d Ta x ( S D LT ) From 22 November 2017 first time buyers paying 300,000 or less for a residential property have paid no SDLT. First time buyers paying between 300,000 and 500,000 will pay SDLT at 5% on the amount of the purchase price in excess of 300,000. If a first time buyer purchases a property for in excess of 500,000 they will not be entitled to any relief and will pay SDLT at the normal rates. The Government has extended the first time buyer s relief for shared ownership properties up to 500,000. This change will apply from 29 October 2018 but can be backdated to 22 November This will bring shared ownership properties in line with the existing treatment. 4 6

5 T E C H N I C A L B R I E F I N G V AT The standard rate of VAT remains at 20%. The government has confirmed that the VAT registration threshold will remain at 85,000 for tax years 2019/20, 2020/21 and 2021/22. The corresponding rate whereby a person may apply for deregistration will be 83,000. S a v i n g s I N D I V I D U A L S A V I N G S A C C O U N T S The overall annual contribution limit will remain at 20,000 for 2019/20. It is possible for savers to contribute the full amount to a cash account. They can also withdraw and replace money within their cash ISA without it counting towards their annual subscription limit. The maximum contribution under a Junior ISA has increased to 4,368, as has the maximum contribution to a Child Trust Fund (CTF). It has been possible from 6 April 2015 to convert a Child Trust Fund to a Junior ISA. I R 3 5 IR35 was introduced to tackle the problem of disguised employment. This is where organisations engage workers on a self-employed basis and usually through an intermediary, rather than on an employment contract. Where they do apply, the business, agency, or third party paying the worker s company will need to deduct income tax and employee NICs and pay employer NICs. From 6 April 2020, medium and large businesses will need to decide whether the rules apply to a contract with an individual who works through their own company. F u t u r e C o n s u ltat i o n s There are a number of consultations which are ongoing or have been announced. The government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland. In relation to insurance business, as announced at autumn budget 2017, the government will publish a consultation on the taxation of trusts, to make the taxation of trusts simpler, fairer and more transparent. It is interesting that HMRC are still yet to publish the results of their consultation into the taxation of trusts. Perhaps this demonstrates that there is a big challenge here to make this work fairly, within the existing regime. 5 6

6 T E C H N I C A L B R I E F I N G S u m m a r y This Technical Briefing represents our current understanding of the major issues arising from the autumn budget Inevitably some further details will emerge over the coming weeks, including the completion of the Brexit negotiations, and the impact of the changes can then be assessed. We will, of course, keep you informed of all major developments. T E C H N I C A L S E R V I C E S O c t o b e r Whilst every effort has been made to ensure the accuracy and completeness of the information, no representation or warranty, express or implied, is given in respect of the accuracy or completeness of the information. The information is based on Utmost Wealth Solutions understanding at the time of writing of current law and HM Revenue & Customs practice which may change. It does not constitute legal or tax advice and must not be treated as such. The Utmost group of companies can take no responsibility for any loss which may occur as a result of reliance on this information. Utmost Wealth Solutions is the trading name used by a number of Utmost companies. Utmost Trustee Solutions is the trading name used by Utmost Trustee Solutions Limited. This item has been issued by: Utmost Limited, Utmost Ireland dac and Utmost PanEurope dac. The following companies are registered in the Isle of Man: Utmost Limited (No C), Utmost Administration Limited (No C) and Utmost Trustee Solutions Limited (No C), which are regulated or licenced by the Isle of Man Financial Services Authority. Utmost Services Limited (No C) is not regulated. Each of the above companies has its registered office at: Royalty House, Walpole Avenue, Douglas, Isle of Man, IM1 2SL British Isles. The following companies are registered in Ireland: Utmost Ireland dac, trading as Utmost Wealth Solutions, is regulated by the Central Bank of Ireland. Its registered number is and it has its registered office at: Ashford House, Tara Street, Dublin 2, D02 VX67, Ireland. Utmost PanEurope dac, trading as Utmost Wealth Solutions, is regulated by the Central Bank of Ireland. Its registration number is and it has its registered office at: Navan Business Park, Athlumney, Navan, Co. Meath C15 CCW8, Ireland. Its FCA number is Both companies are authorised by the Financial Conduct Authority in the UK for Conduct of Business Rules. UL PR 0054/