personal finance

What does the Budget mean for your money?


Chancellor Philip Hammond delivered his pre-Brexit Budget, promising an end to austerity with policies for “strivers, grafters and carers”. But the biggest changes came in relation to individuals’ tax rates.

Here is our summary of how the key measures will affect your personal finances:

Personal tax

The measure that will impact the largest number of Britons is the rise in the personal allowance to £12,500, with the higher-rate tax threshold rising to £50,000 from April 2019 — a year earlier than planned.

The Conservatives had previously pledged to increase the personal allowance to £12,500 by 2020/21 and the higher-rate allowance to £50,000. But in his Commons speech on Monday Mr Hammond announced it would happen sooner than planned.

Property

The chancellor extended stamp duty relief for first-time buyers to those buying shared ownership homes worth up to £500,000.

Last year, the chancellor lowered stamp duty land tax for first-time buyers on homes valued at up to £500,000, scrapping stamp duty on homes worth up to £300,000 and lowering stamp duty on homes worth between £300,000 and £500,000 to 5 per cent on the portion above £300,000.

Tim Bennett, partner at Killik & Co, a wealth manager, said: “While first-time buyers will welcome the abolition of stamp duty on shared ownership properties worth up to £500,000, in isolation this measure, whilst helpful, represents something of a damp squib as it does nothing to address the lack of affordable property available.”

In other property news, the chancellor announced that the government’s flagship Help to Buy equity loan scheme would be extended for two years from April 2021, ending in March 2023. Mr Hammond tweaked the rules to limit the new scheme to first-time buyers only, and has set price caps on the market value of homes according to a regional scale — set at 1.5 times the current regional average prices forecast for first-time buyers and up to a limit of £600,000 in London.

Also, after Theresa May, prime minister, announced the proposal at the Conservative party conference, Mr Hammond confirmed there would be a consultation on a new stamp duty charge for non-residents, which will be published in January. Under the proposal, non-residents buying residential property in England and Northern Ireland would face a surcharge of 1 percentage point. This follows the introduction of a stamp duty surcharge for second homes and buy-to-let properties of an extra three percentage points from April 2016.

Finally, the rules regarding private residence relief were tightened in the Budget. Landlords who at some point lived in the property they rent out currently gain relief from capital gains tax when they sell it. The size of the relief is based on the period of time the landlord occupied the property, with an additional exemption given for the final 18 months of ownership. From April 2020, however, the relief will only apply where the owner is sharing occupancy of the home with the tenant — and the final period exemption will be reduced to nine months.

Savings

The adult individual savings account ( Isa) annual subscription limit for 2019-20 will remain unchanged at £20,000. The annual subscription limit for Junior Isas for 2019-20 will be uprated in line with the consumer prices index to £4,368.

The government will publish a consultation in 2019 on draft regulations for maturing Child Trust Fund accounts. The annual subscription limit for Child Trust Funds for 2019-20 will be uprated in line with CPI to £4,368.

The minimum amount you can save in Premium Bonds will be cut to £25, and people other than parents and grandparents will be able to gift bonds to children. Currently the minimum amount you can save is £100 but this will be cut to £25 by the end of March 2019. NS&I will also launch a new Premium Bonds app in the new year to make “saving easier”.

Self employed

Tens of thousands of freelancers face higher taxes, after the Treasury said it would crack down on private-sector contractors who cannot show they are genuinely self-employed.

The onus will be put on companies to determine whether the contractors they hired were genuinely self-employed, under an extension of a measure already introduced in the public sector

Nimesh Shah, partner at leading accounting practice Blick Rothenberg, said: “Recent Budgets have tried to tackle perceived tax avoidance among the self-employed, it’s probably only a matter of time before the self-employed and employee regimes are aligned for tax”.

Weddings

More couples could be able to get married outdoors or at home as part of a shake-up of the law designed to cut the cost of weddings.

The government has asked the Law Commission to look into changing wedding venue laws to create a “simpler and fairer system”, giving modern couples a “meaningful choice”. The commission will look at reducing unnecessary red tape and lowering the cost of wedding venues for couples by allowing outdoor weddings to take place, bringing England and Wales in line with Scotland.

The average UK wedding cost £30,355 in the year to July 2018, an all-time high according to online wedding planner Bridebook. Hamish Shephard, Bridebook founder, said: “It is a rather strange solution to the issue of rising wedding costs. Marquee weddings cost 50 per cent more than venue-based weddings because of the amount of infrastructure you need to bring in — toilets, flooring, mobile kitchens etc.”

Pensions

The annual and lifetime savings limits for pensions were untouched in the Budget, providing some relief for higher earners who had prepared for further cuts.

Jason Hollands, managing director of investment and financial planning group Tilney, said: “These have looked like they have been living on borrowed time since the chancellor’s predecessor, George Osborne, came close to overhauling them in 2016. The current system of pension tax reliefs have proved as resilient as a cat with nine lives. That will undoubtedly be welcomed by many middle-class professionals, but with a potential Labour government in the wings no one should take the long-term continuity of such generous reliefs for granted because of today’s stay of execution.”

Social care

Announcing an additional £650m of funding for social care in England in 2019-20, the chancellor said a Green Paper on the future of social care “would shortly be published”. Commenting on Twitter about the long wait for this to be published, Sir Steve Webb, former pensions minister, said: “They’re called green papers because that’s the colour of long grass.”

Steven Cameron, pensions director at Aegon, said: “The commitment to provide an additional £650m of funding for social care will offer some relief to councils struggling with ever-increasing demands. However, this is little more than a temporary, sticking plaster measure and we urgently need concrete, long-term proposals in the promised Green Paper on how to tackle the huge issue of funding social care. Our ageing population urgently needs a stable agreement on what the state will pay and how much individuals will have to fund themselves, based on their wealth, and crucially with an overall upper limit.”

Other measures

The “millennial railcard” giving those aged 26-30 one-third off the price of rail fares will be available “across the network” by the end of this year, the chancellor said. This could potentially benefit 4.4m people.

Fuel duty was frozen for the ninth year in a row. This adds up to a cumulative saving of £1,000 for car drivers, rising to £1,500 for van drivers, the chancellor said.

Duty on beer, cider and spirits has been frozen for one year. However, wine drinkers will not be raising a glass. They face an increase in duty of 3.4 per cent, adding 8p to a bottle of wine.

Local authorities to be given £420m for to fix potholes and carry out other road repairs.

The national living wage for over-25s will rise to £8.21 an hour from its current rate of £7.83.

From April 2019, charities will be able to claim 25 per cent Gift Aid on cash and card payments of up to £30. Previously gift aid could be claimed on individual transactions of up to £20.

Air Passenger Duty to be indexed in line with inflation, but there was no change in the duty rate for short-haul flights.

The levy applied to online betting companies will increase to 21 per cent to fund the loss of revenue as fixed odd betting machine stakes are reduced to £2.

Reporting by Lucy Warwick-Ching, Vanessa Houlder, Kate Beioley, Claer Barrett, Nikou Asgari, James Pickford and Josephine Cumbo

Expert views

Michael Martin, relationship manager, Seven Investment Management

Did anyone else manage to find £13bn down the back of the sofa? Perhaps it is next to that shiny new Brexit 50p coin.

What was hailed as the Budget that ended austerity and found the money needed to fix the NHS ended up being something of a damp squib.

It was bought forward to avoid a Brexit meeting, and Halloween. It certainly avoided any big scares. Philip Hammond was determined to give away his windfall. He succeeded without seeming to raise any funds elsewhere.

Two areas remained surprisingly untouched — pensions and Isas (Individual Savings Accounts). Historically, Isas have been the simplest tax-efficient vehicle, although recent new variants have tweaked them into complexity.

Successive chancellors have added to complex rules, striving for the holy grail of “simplification”. Mr Hammond has avoided that particular pothole (and found £420m to fix the roads to boot) by going for super simplification — no mention of either whatsoever.

But I am sure he will be unable to resist the temptation in the future. Until then, back to the spreadsheets to calculate how you are going to spend your “tax windfall”.

Nimesh Shah, partner, Blick Rothenburg

The chancellor has proposed two new changes to main residence relief, which exempts a person’s main residence from capital gains tax when sold.

This is probably the most claimed personal tax relief, even without most people knowing it. As property prices have soared, it has been an increasingly tempting target. Some kind of change is speculated at every Budget, with the intention to generate more tax revenue from capital gains on property sales.

If a person has acquired a new home, but encounters a delay selling their main residence, they currently have an 18 month exemption window. The chancellor proposes reducing this to just 9 months.

He also wants to effectively abolish the £40,000 “lettings relief”. This means that people who move out of their house and rent it out will not be able to benefit from this additional relief, which could be worth £11,200 in capital gains tax.

The changes will be initially consulted on, and if introduced, will take effect from April 2020.

Shortening the exemption to 9 months appears incredibly short, and is a complete mismatch to the additional 3 per cent stamp duty land tax regime, which allows someone moving house to sell their previous home within 3 years and reclaim the additional tax.

In my view, it’s unlikely that both changes will ultimately go through. Whilst lettings relief is more likely to be abolished, the 18 month exemption should remain.

Lindsay Cook, FT Money Mentor columnist

Feelgood Phil defined his third and possibly last Budget with an earlier-than-promised boost to personal tax allowances from April, and an increase in the National Living Wage.

The chancellor told us six times that austerity was definitely ending and he froze duties on most alcoholic drinks so we could all celebrate (although the small tax increase on wine o’clock could dampen spirits).

As Christmas approaches, Feelgood Phil is allowing anyone to buy Premium Bonds — the country’s favourite form of gambling — as gifts for children. Currently, only parents and grandparents can buy them. He is also reducing the minimum purchase from £100 to £25.

Meanwhile remote gaming duty for online gamblers is being increased from 15 to 21 per cent from next October to pay for the reduction in stakes on fixed odd betting terminals — the nation’s most hated form of gambling — to £2.

Importantly, those in debt will be able to get help from the Affordable Credit Challenge Fund and get a breathing space of 60 days to sort their finances out.

Christine Ross

The change to the qualification period for Entrepreneurs’ Relief from the current 12 months to 2 years was unexpected. It simplifies matters slightly in that the qualification period will be aligned with that for Business Property Relief which exempts unquoted trading businesses from inheritance tax.

For genuine entrepreneurs who have started businesses from scratch it should not affect them greatly. However, it will make planning for a business sale more difficult. Any share reorganisations, for example, gifting to a spouse and employing them in the business, will need to be undertaken at a much earlier stage. Early planning will become even more important for those looking to dispose of businesses to ensure they qualify for Entrepreneurs’ Relief.

I am delighted there was no change to the level of pension tax relief or to the annual allowance. I do not believe this is off the agenda, so it is worthwhile making current year contributions and maximising any unused relief from previous years.



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