BudgetOct 31 2018

Tricks and treats contained in Fiscal Phil's Budget

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Tricks and treats contained in Fiscal Phil's Budget

In the longest Budget speech in a decade, the chancellor also known as Fiscal Phil announced self-employed workers will see their tax bills soar from 2020 onwards with accountants claiming he took from contractors to pay for income tax giveaways.

Mr Hammond said: "Last year we changed the way these (IR35) rules are enforced in the public sector, but widespread non-compliance also exists in the private sector.

"Following our consultation, we will now apply the same changes to private sector organisations as well."

According to tax experts IR35 can reduce a worker's net income by up to 25 per cent, costing the typical limited company contractor thousands of pounds in additional income tax and National Insurance contributions.

The tax grab from the self-employed came as Mr Hammond announced the personal allowance – the amount you earn before you have to start paying income tax– will increase by a further £650 in April 2019 to £12,500.

This increase comes a year earlier than planned, and will be maintained in 2020.

According to Mr Hammond, this means a basic rate taxpayer will pay £1,205 less tax in 2019 to 2020 than in 2010 to 2011.

The amount people will have to earn before they pay tax at 40 per cent will increase from £46,350 to £50,000 in April 2019.

This means that in 2019 to 2020, there will be almost one million fewer higher rate taxpayers than in 2015 to 2016.

Mike Cooper, partner at accountancy firm Moore Stephens, said: "With the Treasury having to find the corresponding £9.6bn to fund the rise in the income tax personal allowances and thresholds, it seems that the self-employed have been an easy target to hit again.

"When this is added to the expansion of the rules on off-payroll working to the private sector, this is another Budget that will hit contractors very hard indeed."

Nothing to spook savers

Despite widespread predictions that he would cut back pension tax reliefs and publish a green paper on contributions to social care costs, the pre-Brexit Budget delivered neither of these.

The lifetime allowance for pensions increased just £25,000 to £1.055m in 2019 to 2020, up from £1.030m in 2018 to 2019.

Tim Holmes, managing director of financial adviser Salisbury House Wealth, said as the increase in the lifetime pension allowance was only in line with inflation it did not go far enough by a long stretch.

He said: "Many ‘ordinary’ public sector professionals such as GPs and teachers will be facing substantial tax charges as regular contributions from their salaries may exceed the limit, which is just far too low."

The Budget also stated the Isa annual subscription limits for 2019 to 2020 will remain unchanged at £20,000, and the annual subscription limit for Junior Isas and child trust funds for 2019 to 2020 will be uprated in line with CPI to £4,368.

Mr Holmes said the Isa limit remaining the same further inhibited savers from current and future tax efficiency.

The Budget did promise the ban on pensions cold call calling will come to fruition soon with the final regulations being laid before Parliament in Autumn this year.

Claire Trott, head of pensions strategy at St James’s Place Group, said: "This has been a long time coming and although it won’t stop all pensions scams, anything that can be done to stop even one person losing their hard-earned pension is worthwhile."

Also in a move to convince the industry that the government’s commitment hasn't wavered, Mr Hammond set aside £5m to consult on the design of the pensions dashboard.

Alistair Wilson, head of retail platform strategy at Zurich, said: "With the government seemingly firmly behind the dashboard and state pension information also likely to be included on it, this should increase the pressure on providers who have so far been reluctant to sign up to it."

Blow to landlords

While it was good news on the whole for pension savers in keeping with recent Budgets, Mr Hammond delivered yet another blow to buy-to-let investors. 

From April 2020 the government will reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.

The final period exemption will also be reduced from 18 months to nine months.

The government announced it will consult on these changes but clarified there will be no changes to the 36 months final period exemption available to disabled people or those in a care home.

Tim Walford-Fitzgerald, private client partner at accountancy H W Fisher & Company, said in effect, the change stops the practice of renting the home out for 12 months and still achieving a tax free gain on the sale of the property.

However it wasn't all bad news for landlords as tucked away in the 281-page review documentation accompanying the Budget was a single sentence confirming a HM Treasury U-turn.

HM Treasury scrapped a shared occupancy test for those renting their spare rooms to continue to qualify for the annual £7,500 rent-a-room tax relief.

At the other end of the property ladder, there was also good news for first-time buyers.

The Help to Buy equity loan scheme was extended by two years, now running until 2023 rather than 2021.

Additionally, the new scheme will be for first-time buyers only and a new regional property price cap will be applied to the scheme from April 2021 onwards.

The chancellor also announced that stamp duty relief will be extended to those who purchase properties up to a value of £500,000 through the shared ownership scheme.

This policy will be backdated to the last budget so that anyone who has purchased a property through the scheme since 22 November 2017 will be entitled a refund. 

emma.hughes@ft.com