A politically safe budget

Having been rebuffed by younger voters in the June general election, the Government is understandably concerned to be seen to be addressing their needs, and this was reflected in the Chancellor’s November Budget announcements.

Of particular concern has been the difficulty young people are experiencing in getting onto the housing ladder, with research indicating that the number of home owning 25-34 year olds has fallen from 59% to 38% over the last 13 years.

Government funding is to be provided for house building and planning laws are to be reformed. In addition, first-time buyers are to be exempt from Stamp Duty Land Tax on houses worth up to £300,000, and those buying for up to £500,000 in higher value areas will benefit from a nil rate band on the first £300,000.

Other changes were less significant:

Income tax. With effect from April 2018, basic rate tax will become payable when income exceeds £11,850 p.a. (an increase of £350) and higher rate tax (at 40%) will apply to income in excess of £46,350 p.a. (an increase of £1,650). Additional rate tax will continue to be payable at 45% on income over £150,000 and tax on dividends at 38.1%.

 

Marriage allowance. Spouses are permitted to transfer 10% of their personal allowance to each other, provided neither are higher or additional rate taxpayers This can be backdated for up to four years and legislation is to be introduced which will allow transfers to be made from or to a deceased spouse within the same four year period.

 Capital gains tax

The annual exemption for capital gains will increase in line with the consumer price index from £11,300 to £11,700 for 2018/19, and the equivalent rate for trusts will rise from £5,650 to £5,850.

 Venture capital

The rules are to be tightened-up to restrict investments which qualify for the tax advantages enjoyed by Venture Capital Trusts (‘VCTs’), Enterprise Investment Schemes (’EISs’) and Seed EISs (‘SEISs’). In future, investments must be confined to entrepreneurial companies whose objective is to grow and develop and which involve a significant risk of capital loss.

Additional encouragement is to be given to investing in “knowledge intensive” companies, which satisfy various conditions such as engaging in the creation of patents and other intellectual property and having a certain number of skilled employees. The annual limit for investment in an EIS will be increased from £1 million to £2 million where more than £1 million is invested in such companies.

 State pension. The basic State pension will be increased by 3% (£3.65 per week) and the new State pension by £4.80 per week in accordance with the “Triple lock”. This is the government commitment to increasing payments every year by whichever is the highest of inflation, average earnings and a minimum of 2.5%.

Pension savings allowances. Contrary to some expectations, the Chancellor did not announce any further reduction in either the annual pension savings allowance or the lifetime allowance.

Entrepreneurs’ relief. A  consultation will take place in Spring 2018 to consider how this relief might be extended to shareholders whose holdings reduce below 5% as a result of the company issuing new shares.

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A politically safe budget

Having been rebuffed by younger voters in the June general election, the Government is understandably concerned to be seen to be addressing their needs, and this was reflected in the Chancellor’s November Budget announcements.

Of particular concern has been the difficulty young people are experiencing in getting onto the housing ladder, with research indicating that the number of home owning 25-34 year olds has fallen from 59% to 38% over the last 13 years.

Government funding is to be provided for house building and planning laws are to be reformed. In addition, first-time buyers are to be exempt from Stamp Duty Land Tax on houses worth up to £300,000, and those buying for up to £500,000 in higher value areas will benefit from a nil rate band on the first £300,000.

Other changes were less significant:

Income tax. With effect from April 2018, basic rate tax will become payable when income exceeds £11,850 p.a. (an increase of £350) and higher rate tax (at 40%) will apply to income in excess of £46,350 p.a. (an increase of £1,650). Additional rate tax will continue to be payable at 45% on income over £150,000 and tax on dividends at 38.1%.

 

Marriage allowance. Spouses are permitted to transfer 10% of their personal allowance to each other, provided neither are higher or additional rate taxpayers This can be backdated for up to four years and legislation is to be introduced which will allow transfers to be made from or to a deceased spouse within the same four year period.

 Capital gains tax

The annual exemption for capital gains will increase in line with the consumer price index from £11,300 to £11,700 for 2018/19, and the equivalent rate for trusts will rise from £5,650 to £5,850.

 Venture capital

The rules are to be tightened-up to restrict investments which qualify for the tax advantages enjoyed by Venture Capital Trusts (‘VCTs’), Enterprise Investment Schemes (’EISs’) and Seed EISs (‘SEISs’). In future, investments must be confined to entrepreneurial companies whose objective is to grow and develop and which involve a significant risk of capital loss.

Additional encouragement is to be given to investing in “knowledge intensive” companies, which satisfy various conditions such as engaging in the creation of patents and other intellectual property and having a certain number of skilled employees. The annual limit for investment in an EIS will be increased from £1 million to £2 million where more than £1 million is invested in such companies.

 State pension. The basic State pension will be increased by 3% (£3.65 per week) and the new State pension by £4.80 per week in accordance with the “Triple lock”. This is the government commitment to increasing payments every year by whichever is the highest of inflation, average earnings and a minimum of 2.5%.

Pension savings allowances. Contrary to some expectations, the Chancellor did not announce any further reduction in either the annual pension savings allowance or the lifetime allowance.

Entrepreneurs’ relief. A  consultation will take place in Spring 2018 to consider how this relief might be extended to shareholders whose holdings reduce below 5% as a result of the company issuing new shares.