Coutts Hero Image

Pre-Brexit Budget 2018: Getting down to business

SHARE

Summary

The Chancellor has delivered a business-friendly Budget with the future firmly in his sights.

3 min read

As we come to the end of Coutts Entrepreneur Month, we look at the measures announced which support up-and-coming businesses. We also cover what the Budget means for you when it comes to property, pensions and tax allowances.

Getting started in business

We know that many of our clients come from families of serial entrepreneurs, and the Chancellor announced a number of measures designed to help new businesses get going.

The reduction of business rates for small independent retailers – with a rateable value of £51,000 or less – could boost opportunities for young entrepreneurs while helping revitalise the high street. Whether it’s an independent bookshop, a specialist food shop or a hip new boutique, this aims to add life to town centres by encouraging the next generation of retail tycoons. However, this reduction will only be in place for two years.

Entrepreneurs’ Relief helps to reduce Capital Gains Tax on the first £10 million of gain when selling a business. This has broadly been available for some time to directors or employees of an unquoted trading company who hold 5% of the shares.

While leaving the incentive in place, the Chancellor took the opportunity in the latest Budget to focus the relief on genuine entrepreneurship by adding two further conditions:

  • Investors will need not only to own 5% of the company’s shares but also the distributable profits and net assets of the company
  • From 6 April 2019, the minimum period that they will need to have held the shares – and that the company will need to have been trading – will rise to two years from one

There are a number of additional announcements of smaller schemes designed to help entrepreneurs, focussed on regional development, mentoring and businesses in key industries. These will all help the next generation of entrepreneurs in your family build businesses with the potential for growth.

Another measure worth noting involves the off-payroll working rules – known as IR35. Following previous reform in the public sector, the Chancellor announced that these changes will now also be rolled out to large and medium businesses in the private sector from April 2020.

 

The economy and property

As well as the immediate issues of personal finance, the Budget gives chancellors the opportunity to boost the economy, which can benefit investors. This year, the Chancellor was fairly short on substantial economic announcements, perhaps keeping his powder dry in the face of Brexit. As a consequence markets didn’t react strongly.

One measure that could see some benefit for the commercial property sector is business rates relief for small retailers. We’ve seen solid gains of around 3% from our property holdings this year, but returns have come mostly from offices and warehouses, with the retail sector more subdued.

While the new measures are unlikely to lead to a massive surge in retail property values, it could be a sign that this sector is set to make a bigger contribution to commercial property returns in future as the government moves to level the playing field between internet retailers and the high street. The announcement of the Digital Services Tax could be another step along this path, although it remains to be seen what form this will take.

Look out for our latest analysis of high-end property trends in London in the next edition of the Coutts London Prime Property Index, published next week. In the meantime, our previous edition looks at the longer term trends and top locations for a UK holiday home.

Become A Client

When you become a client of Coutts, you will be part of an exclusive network. 

Read More
“We know that many of our clients come from families of serial entrepreneurs, and the Chancellor announced a number of measures designed to help new businesses get going.”

Allowances and thresholds

The Chancellor brought forward increases in the income tax allowance and the higher rate threshold to 2019, one year ahead of the previously announced timetable of 2020. From April next year, tax allowances will be:

  • Income Tax personal allowance - £12,500 (currently £11,850)
  • Higher rate threshold - £50,000 (currently £46,350)
  • Additional rate threshold -  £150,000 (unchanged)
  • Capital Gains Tax annual allowance - £12,000 (currently £11,700)

There is no change to the phasing out of the personal allowance for people with taxable income over £100,000.

 

Pensions and ISA allowances left in place

Key tax reliefs offered through pensions and individual savings accounts (ISAs) are a cornerstone of good financial planning.

Pension allowances have been under pressure in recent years, and it’s no secret that the Chancellor sees them as “eye-wateringly expensive”. However, the Chancellor left pensions unchanged in the current budget – in fact, the lifetime allowance will increase slightly in line with the Consumer Prices Index to £1,055,000. Given the trend to reduced benefits, it’s worth considering making the most of allowances currently in place.

Even if there’s no change to the future reliefs, you should consider the role of pensions in your financial planning. Pensions are not just about providing an income after you stop working, but also about making the most of your long term investments. Even high earners, who face extra restrictions on tax relief, could see a real benefit over time.

You could start by making sure you’re contributing as much as you can to any employment-related pension scheme you may have, as these often come with other benefits such as contribution matching. If you don’t have a work-related pension, you can contribute through a self-invested pension plan (also known as a SIPP), such as the Coutts Invest Pension.

Similarly, contributions to an Individual Savings Account (or ISA) can accumulate into substantial investments that are free from UK tax on interest, dividend and capital gains. When investing on behalf of your children, it makes sense to start them as early as possible to give them the maximum benefit of the tax relief. Of course, investments can go down as well as up and you may not get back the amount you invested.

 

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Tax reliefs referred to are those applying to UK residents under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances. Coutts does not provide tax advice. 
When dealing with tax matters we recommend speaking to a suitably qualified tax adviser.The final value of your pension fund will depend primarily on how much has been paid in and how well the fund’s investments have performed. The value of investments can fall as well as rise, and you may not get back the full amount you invest.

Key Takeaways

There were a number of measures in the 2018 Budget aimed squarely at benefitting entrepreneurs. Reduced business rates for small independent retailers and a focus on regional development were among the business-backing moves. The Chancellor also left pensions and individual savings account levels unchanged, keeping these as the key planks for preserving the long-term wealth of your family.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

Discover More About Coutts Investments