Autumn Budget 2017: Private Client
The welcome increases in personal tax allowances and thresholds, and minimum wage rates, will help many of the lower paid. However, many of the measures impacting individuals were insignificant. Many feared a further raid on pensions, but this did not materialise.
From April 2018 the tax free Personal Allowance will increase to £11,850 (from £11,500) and the higher rate threshold to £46,350 (from £45,000).
Any extension to tax free allowances is always welcome and this will be pleasing for many lower earners and low income families. Providing an extension to the basic rate band to allow individuals to receive annual income of up to £46,350 before higher rate tax is suffered should keep many more tax payers outside of 40% tax.
Individual Savings Accounts (ISAs)
The Individual Savings Account (ISA) subscription limit is frozen at £20,000 for 2018/19 but the subscription limit for Junior ISAs and Child Trust Funds will be increased to £4,260.
No increase to the 0% starting rate band for savings income plus no increase in personal ISA limits – this is not good news for regular savers, but the allowances were already relatively generous in this area.
Capital Gains Exemption
The annual Capital Gains Tax exemption limit for individuals will increase to £11,700 for 2018/19 (currently £11,300).
A small but welcome increase which will be useful for many individuals holding small stock holdings.
New anti-avoidance rules will be introduced to ensure that a UK resident individual who benefits from an offshore trust will be subject to UK taxation on income and gains arising, even where they have not directly received the payment. In addition, there will be a consultation on taxing non-residents’ gains on immovable property, and this will impact offshore trusts holding commercial property (as well as individuals and companies).
The new anti-avoidance rules tweak existing legislation, and are not unexpected. The extension of the current rules on the taxation of residential property held in offshore trusts to non-residential property can be seen as a natural step that brings UK tax policy more in line with other jurisdictions. This will have a significant impact on some, and more details are included in the Property Tax section of our analysis.
Offshore trusts are seen by many as vehicles used purely to avoid UK tax, and any tightening of the rules on how they are taxed in the UK is unlikely to be controversial.
It was announced that there will be a consultation on how to make the taxation of trusts simpler, fairer and more transparent.
We have been here before. Simplification of trust taxation would be universally welcomed, with the Trust Registration Service, Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) in recent years significantly increasing the compliance burden on trustees and the financial institutions that service them. What is often overlooked is the fact that the main benefit of a trust is asset protection rather than tax mitigation.
On 1 December the government will publish a call for evidence on the use of the rent-a-room relief scheme, with a view to establishing whether it is consistent with the original policy aim of supporting longer-term lettings.
The rent-a-room scheme lets a homeowner earn up to £7,500 per year tax free from letting out furnished accommodation in their own home. It remains to be seen whether the original policy objectives are being met, or whether we are likely to see changes to this relief.
Mileage rates for landlords
The Chancellor announced that he will introduce legislation to give private landlords the ability to claim a fixed rate tax deduction for business-related journeys. This will be as an alternative to claims for capital allowances on the cost of vehicles, and deductions for actual expenses such as fuel.
This measure will be a simpler alternative to the otherwise cumbersome way of calculating motoring expenses for private landlords. HMRC will no doubt expect landlords to maintain a verifiable record of the mileage allowance they are claiming. However, some car manufacturers now have apps available that can automatically provide a downloadable journey log which would make this process very easy.