Personal Tax – How the Autumn Budget could affect you

Following the recent budget statement, our colleagues at Donald Reid Group have looked at some of the issues raised in more depth. Firstly, Stephanie Franklin, Tax Manager at DRG Chartered Accountants, considers the impact of some the changes announced in the 2018 Autumn Budget.

Changes to individual tax rates

The personal allowance for individuals has been increased to £12,500 from 6 April 2019, which allows those with income of up to £100,000 benefit from a higher tax-free amount. The personal allowance is then tapered by £1 per £2 in excess of £100,000 so it will now be individuals with income of £125,000 who will lose the personal allowance completely.

In addition, the basic rate band has been increased to £37,500 from 6 April 2019 enabling individuals with income up to £50,000 to be taxed at basic rate of 20%. In 2018/19, salary of £50,000 would have suffered income tax of £8,360, whereas under the new rates for 2019a /20, this is reduced to £7,500, saving income tax of £860.

The Budget did not affect the taxation of savings or dividend income with the savings allowance of £1,000 (basic rate)/ £500 (higher rate) and the dividend allowance of £2,000 still available.

The residential nil-rate band (RNRB) will increase to £150,000 from 6 April 2019 in line with announcements made previously. This aims to minimise the inheritance tax suffered on the family home passed to linear descendants on death. The full RNRB of £175,000 will be in place from 6 April 2020. Please note that this is tapered by £1 for every £2 that the total estate exceeds £2million.

Capital Gains Tax changes – Sale of residential property

You may want to act on this now, if you are considering selling your property which you have previously occupied as your main residence, based on two changes announced in the Budget which come into force from 6 April 2020,

As has always been the case, Principal Private Residence (PPR) Relief is available for the period of occupation. In addition to this, there are periods of ‘deemed occupation’, which currently include the last 18 months of ownership, which can help to minimise your capital gains tax liability. However, from April 2020, this will be reduced to nine months, reducing the relief available and potentially increasing the taxable gain.

In addition to this, lettings relief, which can currently be claimed if PPR relief is available, is being restricted from April 2020. Historically, lettings relief was available on a period of third party letting, up to a maximum of £40,000. However, for disposals of residential property on or after 6 April 2020, you must have shared-occupancy with the tenant to be able to make this claim. Without the availability of this relief, your taxable gain could increase by £40,000, therefore increasing your capital gains tax liability by up to £11,200.

Stamp Duty changes for first-time buyers

Further help for first-time buyers was announced. Over the last year, first-time buyers have been benefitting from no SDLT on purchases of residential property up to a value of £300,000. The balance between £300,000 and £500,000 was then subject to SDLT at 5%, meaning that total SDLT on a £500,000 property would be £10,000.

However, from 29 October 2018, the government has extended the SDLT first time buyers relief to enable all qualifying shared ownership property valued up to £500,000 to benefit from no SDLT. This has been backdated to 22 November 2017, so first-time buyers who have already paid the SDLT on properties between £300,000 and £500,000 since November 2017 can now reclaim this.

If you would like to discuss any of the issues raised in the budget, please get in touch with one of the team.