UK Autumn Budget 2018 – personal tax changes see manifesto promise met one year earlier than planned

Nov 05, 2018

Last week’s Budget included an announcement that the government’s election manifesto promise of increasing the higher rate tax threshold (HRT) to £50,000 by the end of the current parliament will be met one year earlier.  And there was no backtracking in this Budget on the decision not to proceed with the increases to class 4 NIC for the self-employed which proved so controversial in the aftermath of the Spring Budget of 2017. 

The higher rate threshold  

The Budget announced that the personal allowance will be increased from £11,850 to £12,500 from 6 April 2019. This will remain at the same level in 2020-21 and thereafter will increase by CPI.

The government also stated that it will meet its commitment to increase the HRT to £50,000 from 6 April 2019. This threshold will remain at the same level in 2020-21. As the current HRT is £34,500 this means that an increase to £37,500 will be needed to raise the HRT to £50,000 from 6 April 2019.

However, Scottish and Welsh taxpayers will already know that their Budgets are the one to watch for them as income tax is devolved to both the Scottish and Welsh parliaments.  

Currently, Scots pay 40 percent tax on earnings in excess of £43,430 (up to £150,000) compared to the 2018/19 higher rate threshold of £46,350 enjoyed in the rest of the UK. After the UK Autumn Budget, that differential may grow – unless the Scottish government chooses to close the gap as part of its own Budget announcement planned for 12 December. 

Taxation of self-funded work-related training

Following a consultation in this area, the government is maintaining the scope of tax relief currently available to employees and the self-employed for work-related training costs.

Instead of introduction changes in this area, the government is launching the National Retraining Scheme and skills pilots to help those in work, including the self-employed, develop the skills they need to thrive.

Shared occupancy test for rent-a-room relief

Following consultation on draft legislation proposing changes to rent-a-room relief, the government will not include legislation for the ‘shared occupancy test’ in Finance Bill 2018-19. The existing qualifying test of letting in a main or only residence will be retained.

National insurance contributions 

As previously announced in September, the government will not abolish Class 2 NICs during this Parliament, given the potential impacts on some of the lowest earning in society. There are two remaining measures in the draft NICs Bill published on 5 December 2016: reforms to the NICs treatment of termination payments and income from sporting testimonials. The government still intends to legislate for both of these reforms, which will take effect from April 2020.

Tax treatment of social security income

The government is legislating to confirm the income tax treatment of nine new and existing social security benefits. This includes the five new benefits being introduced in Scotland, which will be treated in accordance with the 2016 agreement between the Scottish government and the UK government on the Scottish Government’s Fiscal Framework.

Short term business visitors (STBVs)

Following a consultation on the tax and administrative treatment of STBVs from overseas branches of UK headquartered companies, from April 2020 the government will widen eligibility for the STBV Pay As You Earn (PAYE) special arrangement and extend its deadlines for reporting and paying tax.

Trusts consultation

As announced at Autumn Budget 2017, the government will publish a consultation on the taxation of trusts aimed at making this simpler, fairer and more transparent.

Lifetime allowance for pensions

The lifetime allowance for pension savings will increase in from 6 April 2019 from £1,030,000 to £1,055,000.

Starting rate for savings

The band of savings income that is subject to the 0% starting rate will be kept at its current level of £5,000 for 2019-20.

Individual Savings Account (ISA) annual subscription limits

The adult ISA annual subscription limit for 2019-20 will remain unchanged at £20,000. The annual subscription limit for Junior ISAs for 2019-20 will be increased to £4,368.

Child trust funds

The government will publish a consultation in 2019 on draft regulations for maturing child trust fund accounts. The annual subscription limit for child trust funds for 2019-20 will be increased to £4,368.

Employment practices

The Budget was silent on the various consultations carried out earlier this year in the context of employment practices in the modern economy.