Autumn Budget 2017: the key points

Date

Dec 08, 2017

Categories

Budget & Autumn Statement

The main theme of the Chancellor Phillip Hammond’s first Autumn Budget was, “building a Britain fit for the future”.  His gloomy downgrading of the UK’s growth forecasts was offset, during the Autumn Budget speech, by some positive announcements about increased spending for education, housing, the NHS and improved productivity. However, there was a distinct lack of tax raising measures, and so you have to question where a lot of the money is going to come from.

 

Housing

One of the Chancellor’s major tax announcements related to the housing market, where first time buyers of houses worth up to £300,000 are now entirely exempt from Stamp Duty Land Tax. Those acquiring higher valued properties of up to £500,000 will receive a nil rate band on the first £300,000. If the purchase price is more than £500,000 the exemption will not apply and normal SDLT rates will be charged.

The buyer of the property must be one or more individuals who have never owned a residential property, or an interest in a home, in the UK or anywhere else in the world. The property must also be intended to be occupied as the buyers’ main home. Parents who help to fund the purchase of a property by their children must be careful not be named as one of the buyers, as it will block the SDLT exemption if the parent has previously owned a home.

The government’s aim is to help first time buyers get on the property ladder and to stimulate the housing market.  This will be a permanent measure which will cost £125m this tax year, and which is expected to total £3.2bn by the end of 2022/23. The concern is that the move will increase the demand for first time buyer properties, and if we don’t have the supply it will push prices up.

 

Fuel & company cars

The fuel duty rise for petrol and diesel cars which was scheduled for April 2018 has now been scrapped.  However the vehicle excise duty for those diesel cars that do not meet latest environmental standards is to rise by one band in April 2018.

Company car benefits are based on CO2 emissions data which has encouraged employees to choose diesel cars due to lower CO2 emissions. The government is trying to reduce the number of diesel cars and so is increasing the current 3% diesel supplement to 4% from 6 April 2018.

Another measure hidden away in the Autumn Budget was the proposal that buy-to-let landlords will be able to claim 45p a mile for necessary visits to their rental properties.  This will be as an alternative to claims for capital allowances and deductions for actual expenses incurred, such as fuel.

 

Personal taxation

The Chancellor announced that in 2018/19 there is to be an increase in the tax-free personal allowance to £11,850 for basic rate taxpayers and to £46,350 for the higher rate band.  The Chancellor reminded us that the government is committed to increasing the personal allowance in 2020 to £12,500 for basic rate tax payers, and to £50,000 for higher rate tax payers.

Up to 10% of the personal allowance (£1,185) may be transferred from one spouse or civil partner to the other if is unused, and the transferee is a basic rate taxpayer. This transfer will now be available on behalf of deceased spouses and civil partners, and the claim may now be backdated for up to four years where the entitlement conditions were met.

The government has also confirmed that the amount you can save into a pension over your lifetime, whilst still qualifying for valuable tax breaks, is to rise for the first time since April 2010.  In April 2018 this ‘lifetime allowance’ on pension contributions will increase by £30,000, from £1m to £1.03m.

 

Tax and NIC rates

The basic and higher rates of income tax remain at 20% and 40% respectively, and the 45% additional rate continues to apply to incomes over £150,000.

Although Class 2 National Insurance contributions (NIC) for the self-employed are being abolished from 6 April 2019 and ‘merged’ with Class 4 contributions, the Chancellor did not dare mention an increase in the current 9% Class 4 rate this time!

There had been rumours that the dividend rate might be increased, but dividends continue to be taxed at 7.5%, 32.5% and 38.1%, depending on whether they fall into the basic, higher or additional rate tax band.

The annual ISA investment limit increased to £20,000 from 6 April 2017, and remains at that level for 2018/19. Dividends on shares held within an ISA continue to be tax-free.

 

VAT

The VAT registration limit has been frozen at £85,000 until 1 April 2020. More information about the VAT threshold freeze from the Autumn Budget can be read in our separate article.

 

R&D tax relief

The government has allocated a further £2.3bn for investment in research and development (R&D).  There has also been an increase in the R&D tax credit rate from 11% to 12%, which will take effect on expenditure from 1 January 2018.  Please note that this increase only applies to the ‘above the line’ R&D Expenditure Credit (RDEC) regime, and not to the SME R&D tax credit scheme, which is calculated by deducting an additional 130% of qualifying costs from profits chargeable to corporation tax.  It would be more positive if this increase could be extended to benefit smaller businesses and SMEs as well. RDEC is aimed at larger businesses, but the current SME relief is capped by EU state aid rules.

 

Business rates relief

Hot on the heels of a massive backlash following the revaluation of business rates in April, the Chancellor has now advanced by two years its plans to increase business rates in line with the lower Consumer Price Index (CPI) measure of inflation instead of the Retail Price Index (RPI).  This means that in April next year business rates will rise by 3% instead of 3.9%. The change represents a £2.3bn reprieve for the UK’s rate-paying businesses.   Do note, however, that as the revaluation of properties has changed from every five years to every three years, this relief may well be short lived.

In order to support the licensed trade, from April 2017 pubs with a rateable value up to £100,000 are able to claim a £1,000 business rates discount for one year. This relief has now been extended until March 2019.

The law will be changed on staircase tax, which charges businesses more if they trade from multiple floors in a mixed use building. Businesses which have been affected by this tax will be permitted to have their original bill reinstated and backdated.

 

National Living Wage

The National Living Wage will be increased from its current level of £7.50 to £7.83 from April next year. This represents a 4.4% increase for some of the country’s lowest paid workers.

 

IR35 “off-payroll” rules

Although not mentioned in the Autumn Budget speech, other documents released on Budget day mention the possible extension of the rules for personal service companies in the public sector, to workers in the private sector.

The government will consult in 2018 on how to tackle non-compliance with the intermediaries legislation (commonly known as IR35) in the private sector. The legislation, which currently only applies in the public sector, aims to ensure that individuals who effectively work as employees are taxed as employees, even if they choose to structure their work through a company.

 

It is perhaps of no surprise that there were no controversial measures announced, as this Autumn Budget speech came from the Chancellor of a minority Government. The last thing they need at the moment is a Finance Bill that is not passed by the House.

 

If you have any queries regarding the impact of the Autumn Budget, please don’t hesitate to get in touch.