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What the 2018 Budget means for 2019

In the recent Autumn Budget the Chancellor promised the end of austerity but announced relatively few revenue raising measures. There were no major changes to the personal tax regime, although the following amendments to existing legislation are proposed.

Capital Gains Tax (CGT)

  • From April 2020 the government proposes two changes to principal private residence relief (PPR). Lettings relief will be restricted to those who share occupancy of their home with a tenant (currently, up to £40,000 of relief (£80,000 for a couple) applies to those who let out a property that is, or has been in the past, their main residence). In addition, the exemption on gains in the final period of ownership that applies even if the owner is no longer in occupation is to be reduced from 18 to 9 months.
  • A few targeted reforms to entrepreneurs' relief (ER) were announced. Relief is due on the disposal of certain business interests to taxpayers holding at least 5% of the ordinary share capital and 5% of the voting rights in the business. With effect from Budget day (29 October 2018) they must also have a 5% interest in both the distributable profits and the net assets of the company for the specified period - which is also being extended from one to two years for disposals made on or after 6 April 2019. Finally it was confirmed that from April 2019 disincentives for companies to take on external investment will be removed by ensuring that, even if an individual’s shareholding is diluted to below 5% as a result, they will be able to claim the relief on gains made up to that point.
  • The changes to the CGT payment window requiring payment by UK residents within 30 days of disposal of UK residential property (instead of as part of the usual self-assessment process) will go ahead for disposals on or after 6 April 2020. Payment is already required within 30 days for disposals within the non-UK resident CGT charge. This will be extended, for disposals on or after 6 April 2019, to any UK land and interests in property rich companies by non-UK residents. The draft legislation has been amended to remove disposals by UK residents of non-UK properties from the rules and remove non-UK resident companies from the reporting requirement as they will be subject to Corporation Tax going forward. It is confirmed that non-UK residents will be required to submit returns whether gains accrue or not, but for UK residents no return is required if no gain arises.
  • As previously announced, an option to defer the immediate CGT exit charge that is triggered when trustees become non-UK resident or where a non-UK resident individual ceases to trade through a branch or agency in the UK or moves trading assets out of the UK, will be introduced in certain specific circumstances, from 6 April 2019. This is in direct response to an adverse European Court of Justice ruling that an immediate CGT charge on trustees was discriminatory.

Inheritance Tax 

Legislation will be in next year's Finance Bill to reflect 'HMRC's current established legal position' that additions to excluded property trusts made at a time when the settlor has become UK domiciled or deemed domiciled will not qualify as excluded property. The legislation will apply to IHT charges arising on or after the date on which the legislation is enacted whether or not the additions were made prior to this date. There will also be measures to ensure that transfers between trusts will be subject to additional excluded property tests. This appears to be in response to a recent Court of Appeal case that decided that transfers between excluded property settlements after the settlor has become UK domiciled could be made without the property becoming subject to IHT.

SDLT

There is a further move towards the idea of a 'special' SDLT surcharge for non-residents buying residential property in England and Northern Ireland, initially announced at the Conservative Party conference. A consultation will be published in January 2019 and the surcharge rate is suggested at 1%.

 

December 2018

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Bankside Office

240 Blackfriars Road
London
SE1 8NW
DX 53 Chancery Lane

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

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