Now the dust is beginning to settle on last week’s Budget a few thoughts on a couple of measures announced by the Chancellor.
In previous years some Budgets have started to unravel after accountants (and journalists) start poring over the small print. Remember the infamous pasty tax in 2012 which resulted in a somewhat humiliating, and swift, U-turn by the then Chancellor George Osborne?
So far the measures announced in this year’s Budget seem to be holding firm but there have been at least two ‘after shocks’ which have led to some unfavourable headlines for Philip Hammond.
Much was made on the day about the announcement of the rise in the higher rate threshold – the earnings level at which people will start paying the 40p rate of tax.
Currently £46,350, it will increase to £50,000 from 2019-2020. Along with an increase in the personal allowance (the amount people can earn before paying any tax) from £11,850 to £12,500, the Chancellor said this package would benefit 32 million people from next year.
However, what was not mentioned is that the threshold at which National Insurance payments are reduced from 12 per cent to two per cent has also risen to £50,000.
So what was hailed as a £860 annual gain for higher-rate tax payers will actually work out at £495. Still a decent rise but not quite as first billed.
Another announcement which could have significant implications, especially for couples going through a divorce, is a planned change in private residence relief.
At present people who rent out a property that used to be their main residence receive ‘lettings relief’ in relation to any Capital Gain that arises when they go on to sell it.
There is also an exemption from Capital Gains Tax (CGT) on the final 18 months of ownership but the Chancellor is proposing to reduce this to nine months (it was three years in April 2014).
The Treasury has announced that lettings relief will be limited to properties where the owner is in shared occupancy with the tenant.
The new exempt period of nine months could have a big effect on those who are going through a divorce or separation where the former joint owned family home is being sold.
Effectively it means a couple could be dragged into the CGT net if the former marital home is not sold within nine months of the separation.
As with all Budgets, the devil is in the detail. If there is anything where you require help or further assistance then please don’t hesitate to get in touch.
- Paul O’Connell can be contacted on 01722 337661 or email paul.o’firstname.lastname@example.org