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What you need to know about the Spring Statement


Economy

The government’s efforts to build a stronger, fairer economy are paying off. The economy remains resilient, and is forecast to continue growing:

• there have been nine consecutive years of growth, and the OBR has forecast further growth every year for the next 5 years
• since 2010, the economy has grown faster than France, Italy and Japan
• the OBR expects inflation to stay close to or on target for the duration of the forecast
• business investment is forecast to start growing again from next year, once businesses have the certainty they need to invest

And employment continues to break records

• since 2010 there are over 3.5 million more people in work, and the OBRforecast employment will increase by a further 600,000 by 2023
• the unemployment rate of 4.0% is the lowest rate since 1975. The OBRforecast it will remain near historic lows over the next five years
• wages are increasing at their fastest pace in over a decade, and are forecast to continue growing faster than inflation, which means more money in people’s pockets
• since 2010, there are a million fewer workless households and every region and nation of the UK has higher employment and lower unemployment
Read the OBR’s Economic and fiscal outlook – March 2019.

Public finances

Thanks to the government’s fiscal responsibility, and the hard work of the British public, the public finances have reached a turning point:

• borrowing has already been reduced by four-fifths since 2009-10 and debt has begun its first sustained fall in a generation
• debt fell last year, and is forecast to fall continuously, to 73.0% of GDP in 2023-24, compared to the peak of 85.1% in 2016-17
• the public finances have continued to improve since the autumn. Borrowing and debt are lower in every year of the Spring Statement 2019 forecast than at Budget 2018
• the government is focused on keeping debt falling so as to not burden the next generation. The government is taking a balanced approach, reducing borrowing and debt, while supporting public services, investing in the economy and infrastructure, and keeping taxes low

Tech and the new economy

Budget 2018 included significant additional support for cutting-edge science and technologies that will transform the economy, create highly skilled jobs, and boost living standards across the UK. Today the Chancellor:

• welcomed the Furman review, an independent review of competition in the digital economy, which has found that tech giants have become increasingly dominant. The Chancellor announced that the government will respond later in the year to the review’s calls to update competition rules for the digital age – to open the market up and increase choice and innovation for consumers
• has written to the Competition and Markets Authority (CMA) asking them to carry out a market study of the digital advertising market as soon as is possible. This was a recommendation of the Furman Review
• committed to funding the Joint European Torus programme in Oxfordshire as a wholly UK asset in the event the Commission does not renew the contract, giving the world-leading experts working at the facility certainty to continue their ground-breaking fusion energy research
• invested £81 million in Extreme Photonics (state-of-the-art laser technology) at the UK’s cutting-edge facility in Oxfordshire
• boosted the UK’s genomics industry with £45 million for Bioinformatics research in Cambridge
• announced £79 million funding for a new supercomputer in Edinburgh – five times faster than existing capabilities – whose processing power will contribute to discoveries in medicine, climate science and aerospace, and build on previous British breakthroughs including targeted treatments for arthritis and HIV

Open and competitive UK

As the UK leaves the EU, it is vital that the world knows the UK is open for business and attractive to international visitors. At the Spring Statement is was announced that:

• from June 2019, citizens of the US, Canada, New Zealand, Australia, Japan, Singapore and South Korea will be permitted to use e-gates at UK airports and at Eurostar terminals. This will significantly reduce queues and improve the flow of passengers and the overall experience at the UK border
• landing cards will also begin to be abolished from June 2019. This will reduce bureaucracy for travellers and speed up the processing of passengers on arrival in the UK
• research institutes and innovating businesses will benefit from an exemption for PhD-level occupations from the cap on high-skilled visas from this autumn. Overseas research activity will also count as residence in the UK for the purpose of applying for settlement, meaning researchers will no longer be unfairly penalised for time spent overseas conducting vital fieldwork

Clean growth

The Budget 2018 set out how the government is accelerating the shift to a clean economy, building on the Industrial Strategy, Clean Growth Strategy, and 25 Year Environment Plan. The Spring Statement builds on this commitment:

• to help smaller businesses reduce their energy bills and carbon emissions, the government is launching a call for evidence on a Business energy efficiency scheme to explore how it can support investment in energy efficiency measures
• to ensure that wildlife isn’t compromised in delivering necessary infrastructure and housing, the government will Mandate net gains for biodiversity on new developments in England to deliver an overall increase in biodiversity
• to help meet climate targets, the government will advance the decarbonisation of gas supplies by increasing the proportion of green gas in the grid, helping to reduce dependence on burning natural gas in homes and businesses
• to help ensure consumer energy bills are low and homes are better for the environment, the government will introduce a Future Homes Standard by 2025, so that new build homes are future-proofed with low carbon heating and world-leading levels of energy efficiency
• to explore ways to enhance the natural environment and deliver prosperity, the government will launch a global review into the Economics of Biodiversity
• to give people the option to travel ‘zero carbon’, the government will launch a call for evidence on Offsetting Transport Emissions to explore consumer understanding of the emissions from their journeys and their options to offset them. This will also look into whether travel providers should be required to offer carbon offsets to their customers
• to help protect critical habitats, the government will support the call from the Ascension Island Council to designate 443,000 square kilometres of its waters as a Marine Protected Area

Education and skills

Ensuring people have the skills that employers need is vital to creating the workforce of the future. The Budget set out steps to equip people with the skills to succeed in the modern economy, and today the Chancellor announced:

• updates to apprenticeship reforms announced at Budget that mean from April 1st employers will see the co-investment rate they pay cut by a half from 10% to 5%, at the same time as levy-paying employers are able to share more levy funds across their supply chains, with the maximum amount rising from 10% to 25%
• to tackle period poverty in schools, the Department for Education will lead work to develop a national scheme in England to provide free sanitary products to girls in secondary schools
• the government has appointed Professor Arindrajit Dube to undertake a review of the latest international evidence on the impact of minimum wages, to inform future National Living Wage policy after 2020

Investing in the future – housing and infrastructure

The government is determined to fix the broken housing market. Building more homes in the right places is critical to unlocking productivity growth and makes housing more affordable. At Autumn Budget 2017, the government set out a comprehensive package of new policies to raise housing supply by the end of this Parliament to its highest level since 1970, on track to reach 300,000 a year on average. The Spring Statement set out further steps to deliver this ambition:

• published a consultation on Infrastructure Finance, seeking views on how the government can best support private infrastructure investment in the context of the UK’s changing relationship with the European Investment Bank
• reiterated the government’s commitment to publishing a comprehensive National Infrastructure Strategy – the first of its kind – setting out the government’s priorities for economic infrastructure and responding to recommendations in the National Infrastructure Commission’s National Infrastructure Assessment
• £717 million from the £5.5 billion Housing Infrastructure Fund to unlock up to 37,000 homes at sites including Old Oak Common in London, the Oxford-Cambridge Arc and Cheshire.
• through the Affordable Homes Guarantee Scheme, the government will guarantee up to £3 billion of borrowing by housing associations in England to support delivery of around 30,000 affordable homes
• further progress on delivering growth in the Oxford-Cambridge Arc including £445 million from the Housing Infrastructure Fund to unlock over 22,000 homes, and a joint declaration with local partners, affirming our shared vision for the Arc
• up to £260 million for the Borderlands Growth Deal, which on top of the £102 million announced recently for Carlisle from the Housing Infrastructure Fund means up to £362 million UK Government funding into the Borderlands area

Spending Review

The Chancellor also confirmed that the government will hold a Spending Review which will conclude alongside the Budget. This will set departmental budgets, including 3 year budgets for resource spending, if an EU exit deal is agreed. As at the past three Spending Reviews, the government will run a Zero-Based Review of capital spending where each programme or project will be scrutinised from the bottom up, ensuring the maximum return for the country. The Spending Review will also have a renewed focus on the outcomes achieved for the money invested – supporting a high-growth economy with public services that work for everyone.

Read More - https://www.gov.uk/government/news/spring-statement-2019-what-you-need-to-know

For many people the New Year prompts a review of their life goals. If you are wondering whether, or when, you should sell your business, a sensible first step is to form an outline plan for its disposal.

The sale of a successful trading company will generate a capital gain, which would normally be taxed at 20% after deduction of your annual exemption (currently £11,700, increasing to £12,000 for 2019/20).

Entrepreneurs’ Relief can reduce your tax rate to 10% on a gain of up to £10m. But there are now five conditions which you must meet for at least 12 months ending with the date of the sale:

• hold at least 5% of the ordinary share capital of the company
• hold at least 5% of the voting rights of the company
• be entitled to at least 5% of the distributable profits available to the equity holders
• be entitled to at least 5% of the assets available for distribution to equity holders on the winding up of the company
• be an employee, director or company secretary of the company or of another company in the same trading group

If you plan to sell your company after 5 April 2019 the above conditions will have to be met for at least 24 months ending with the date of sale.
When you step back gradually from your company, retiring from your role as director before you sell your shares, you may miss out on this valuable tax relief. Also, a plan to sell your company and carry on the business on a smaller scale as an individual or partnership can be caught by anti-avoidance legislation.

Action Point!
Allow at least 12 months to prepare to sell your company.

Individual landlords of residential properties are subject to restrictions on how much interest and finance costs they can deduct from rental income.

In 2018/19 individual landlords are permitted to deduct just 50% of their interest and finance charges for tax purposes. From 6 April 2019 it reduces to just 25% and from 6 April 2020 all such finance costs will be disallowed. In place of the blocked interest the landlord receives a 20% tax credit to set against his Income Tax bill. This restriction of interest deductions doesn’t apply to corporate landlords.

Where the property business is supported by borrowing, the increased taxable income can push the landlord’s total income into higher tax bands, leading to the loss of allowances or the clawback of Child Benefit.

The example below compares an English landlord’s tax position in 2018/19 (when he deducts 50% of the £32,000 interest paid) with his position in 2020/21, when all his interest is blocked. The amounts of Personal Allowance (£12,500) and basic rate band (£37,500) are estimated for the later year. The figures will be different for Scottish taxpayers, who pay tax on property income at different rates.

graph 1

If your residential property business is supported by large borrowings, you need to urgently consider whether to restructure that business to avoid significantly higher tax bills. Your choices may include:


• selling one or more residential properties to reduce borrowings

• selling all residential property and reinvest in commercial buildings (the interest restrictions don’t apply)

• let the homes as Furnished Holiday Lettings (which are not affected, but require detailed conditions to be met)

• transferring the properties into a company

The last option is not easy as the lender will have to agree to transfer your property loans to the company. The transfer of properties is likely to incur land tax charges for the company, and may well generate a taxable capital gain in your hands.

Since April 2017 individual landlords with turnover of no more than £150,000 should use the ‘cash basis’ to draw up their accounts. This has the effect of taxing income in the year it is received and expenses in the year they are paid. It may benefit you if your tenants tend to pay late. You can opt out of the cash basis if you wish.

We can help you model the financial future for your residential property lettings.

Action Point!
Review your borrowings to ensure a sustainable future for your lettings business.

Buying property is always complicated, but now you must think about the different taxes you will pay on the purchase of properties located in Wales, Scotland, or the rest of the UK.

In Wales, you will pay Land Transaction Tax (LTT), which starts at 3.5% for residential properties costing over £180,000 and has a top rate of 12% on the portion of the property price which exceeds £1.5 million.

In England or Northern Ireland you will pay Stamp Duty Land Tax (SDLT). This starts at 2% for residential properties worth over £125,000, with a top rate of 12% on properties acquired for £1.5 million or more. However, first time buyers can benefit from a 0% rate on the first £300,000 for properties costing no more than £500,000.

In Scotland, Land and Buildings Transaction Tax (LBTT) starts at 2% for residential properties costing over £145,000. However, first time buyers are charged 0% on the first £175,000, with no upper limit on the property value.

All three countries have imposed a 3% supplementary charge on the value of residential property purchased by a company or as a second home, where the value of the property exceeds £40,000. However, Scotland is planning to increase this supplementary charge to 4% from 25 January 2019. The detailed rules for the supplementary charge differ in each country.

Action Point!
Check the taxes to be payable on purchase before exchanging contracts to buy property.

When you die, your executors or relatives need to sort out your affairs. This stressful task can be made easier if you leave a clear and up-to-date Will which has been drafted with tax in mind.

They also need to pay Inheritance Tax (IHT) if the net value of your assets, including your home and any insurance policies that pay out to your estate on death, exceeds £325,000. Any wealth above this threshold bears IHT at 40%, or at 36% if at least 10% of your net estate has been left to charity.

The IHT tax threshold is expanded by at least £125,000 if you leave the value of your home to one or more of your direct descendants. If that is your wish, your Will must be clear about who receives the value of your home. This home-related tax exemption will increase to £150,000 for deaths on and after 6 April 2019.
There are other ways to reduce the IHT payable on death, such as:

• use your annual IHT allowance of £3,000 to make gifts from your capital or savings; if you didn’t use the allowance in 2017/18 you can give away up to £6,000 in 2018/19

• make other gifts to individuals as early as possible, as they will fall out of the IHT calculation if you survive seven years after the date of the gift (but be careful not to trigger CGT charges on the gifts)

• make regular gifts out of your surplus income rather than out of accumulated income or capital – those lifetime gifts may escape IHT
• ensure that proceeds from your life assurance policies flow directly to a beneficiary – if the money lands in your estate on your death, this could trigger an IHT charge

• inform your pension fund managers of whom you wish to receive any undrawn funds by way of a wishes letter – such funds can be free of IHT if you die aged under 75

Action Point!
Is your Will up to date and do your executors know where to find it?

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Clarke Nicklin House, Brooks Drive, Cheadle Royal Business Park, Cheadle, Cheshire, SK8 3TD. Registered Number OC309225.
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