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Five Things You Should Know About The Budget

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Summary

The key points for wealthy individuals

3 min read

The Chancellor’s first Budget after an election victory would normally be an opportunity for bold moves, but a minority government and ongoing Brexit uncertainty meant it was, unsurprisingly, a low-key affair. The Chancellor advocated a balanced approach where the UK prepares for the future.

Here are five changes we think you should know about. 
 

1. Technology and innovation: driving investment

Chancellor Philip Hammond stressed the importance of “investing in the technologies and the skills of the future”.

He announced a plan to raise over £20bn of new investment in innovative UK businesses over 10 years. That plan includes doubling the amount that can be invested in certain companies through the Enterprise Investment Scheme (EIS) – a venture capital scheme that provides tax relief to investors to help small and medium sized companies grow.

The annual limit for an investor in an EIS scheme will rise from £1m to £2m, but any amount over £1m is only eligible if it is invested in a “knowledge-intensive company”.

The government also committed to invest over £500m in a host of technological initiatives from artificial intelligence to 5G and full fibre broadband, and announced more support for driverless vehicles.

Coutts supports innovative companies through our Investment Opportunity Service. The service brings together financially sophisticated high net worth clients looking for direct equity investment opportunities and small, private businesses ready to take the next step. More broadly, technology is one of our preferred investment themes and features strongly throughout our portfolios and funds.

2. Property: news for first-time house buyers and non-UK residents

Stamp duty land tax (SDLT) was abolished for all first-time buyer purchases up to £300,000 with immediate effect. It has also been removed on the first £300,000 of properties bought for up to £500,000 – good news for those looking to get on to the property ladder in high price areas like London.

It’s worth remembering, though, that this relief will not be available where the cost of the property exceeds £500,000. In those circumstances, standard SDLT rates will still apply to the full purchase price.

There were property-related changes for non-UK resident individuals and entities too. They are currently only liable to capital gains tax when selling UK residential property. But from April 2019, the tax charge will extend to the money they make selling any UK property. This follows a broader trend of pulling all disposals of UK property into the UK tax net and is likely to have wider implications for real estate investment – whether held directly or indirectly.

“Stamp duty land tax (SDLT) was abolished for all first-time buyer purchases up to £300,000 with immediate effect.”

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3. Tax: allowances and thresholds

The government will increase the threshold at which people pay the higher rate of income tax – 40% – to £46,350 from next April. That’s up from £45,000 and, according to the Chancellor, in line with inflation.

The amount above which people start paying income tax, the personal allowance, will also go up from £11,500 to £11,850.

Within the Budget, the government has restated its commitment to raising the higher rate threshold to £50,000 by 2020.

The limit on ISAs remains unchanged at £20,000 a year but using your annual allowance should still form an important part of your investment strategy – whether online or through your private banker.

4. Inflation: a freeze on relief for companies

Relief for inflation is to be frozen for companies from 1 January 2018. Currently, an ‘indexation allowance’ takes into account the effects of inflation when calculating the chargeable gains made by a company when it disposes of assets. This includes investment assets held within a corporate structure.

The Chancellor said: “We are committed to maintaining Britain’s competitive corporation tax rates. But there is a case now for removing the anomaly of the indexation allowance for capital gains – bringing the corporate system into line with personal capital gains tax.”

5. Trusts: what does the future hold?

A consultation will begin in 2018 on the taxation of trusts. The stated objective is to make this area simpler, fairer and more transparent. It’s early days but certainly one to watch.

…and three other upcoming changes

Although not included in this most recent Budget, three important changes taking effect from April 2018 are:

  • A reduction in the tax-free dividend allowance from £5,000 to £2,000. This means additional rate taxpayers will be worse off by £1,143 and higher rate taxpayers worse off by £975. 
  • A further phased reduction in higher-rate tax relief for mortgage interest for buy-to-let investors.
  • A planned increase in the main residence inheritance tax nil rate band to £125,000, an important consideration for wealth succession.

Key Takeaways

However the budget affects you, it’s a reminder of the importance of good financial planning – whether it’s for the next generation of your family or simply to save for something special. Speak to your private banker to find out how we can help you.

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