2019/20 Changes Already Announced

From 6 April 2019, a raft of tax and other changes take effect, most of which date back to last October’s 2018 Budget. There are further important changes down the line in 2020. The Chancellor did not introduce any new tax measures in his Spring Statement, although he did announce a number of new consultations.

Income tax: UK

The personal allowance for 2019/20 will rise by 5.5% to £12,500 and the basic rate band will increase by 8.7% to £37,500 (outside Scotland), making the higher rate threshold (the sum of the two) £50,000. These increases are significantly higher than inflation.

Income tax: Scotland

The same personal allowance as in the rest of the UK will apply, but in Scotland a different set of rates and bands will again apply to non-savings, non-dividend income – primarily earnings.

Scottish taxpayers will continue to have five tax bands with the tax rates for 2019/20, as for 2018/19, ranging from 19% to 46%. The threshold for the higher rate of income tax (at 41%, not 40%) will remain unchanged at £43,430, which is £6,570 below the rest of the UK.  Someone with earnings of £50,000 a year will have an extra income tax charge of £1,544 a year for being resident north of the border.

Income tax: Wales

The National Assembly for Wales now has the power to vary income tax rates (not bands), but for 2019/20 it has decided not to make any changes from the rates of the rest of the UK (excluding Scotland).

National insurance contributions

The national insurance contribution (NIC) thresholds will be increased by 7.9%. The upper earnings limit (for employees) and upper profits limit (for the self-employed) will rise to £50,000, matching the UK higher rate income tax threshold outside Scotland.

Class 2 NICs, which were due to cease in April, will survive until at least the end of the current parliament. The Class 2 rate for 2019/20 will be £3.00 per week. 

Company cars

Company car tax will rise for all but the highest emission vehicles from 6 April 2019. The taxable cash equivalent percentages will all increase by three percentage points, subject to the current ceiling of 37% of list price.

The diesel surcharge will remain at 4% for diesel cars that do not meet the RDE2 emission standard (which in 2019/20 means almost every diesel car on the road). The maximum charge for diesels also stays at 37%.

The lower the level of emissions, the greater the impact. For example, the tax payable on the BMW i3 electric car will increase by almost a quarter as the scale percentage for CO2 emissions up to 50g/km rises from 13% to 16% in 2019/20. On the other hand, the extra 3% makes no difference to the owner of a BMW M3, which is already subject to the 37% maximum charge in 2018/19.

A more significant reworking of the scales is scheduled for 2020/21. The new structure covers CO2 emissions of up to 50g/km for hybrid and electric-only vehicles. The BMW i3 scale charge will then drop to 2%, as the table below demonstrates.

Low emission company car scale charges 2020/21

Maximum electric range (miles)

Less than 30

30–39

40–69

70–129

130 or more

0 CO2 emissions g/km

2%

2%

2%

2%

2%

1–50 CO2 emissions g/km

14%

12%

8%

5%

2%

 

Inheritance tax (IHT)

The residence nil rate band, which was introduced in 2017/18, will rise by £25,000 to £150,000 in 2019/20. The main nil rate band will remain at £325,000 – the level set in 2009.

In 2020/21, the residence nil rate band will reach £175,000.

Automatic pensions enrolment

The minimum contribution levels for workplace pensions operating under the automatic enrolment provisions will rise from 6 April 2019:

 

2019/20

2018/19

Earnings trigger for auto-enrolment

£10,000

£10,000

Employer minimum contribution

3% of band earnings
£6,136–£50,000

2% of band earnings
£6,032–£46,350

Employee contribution*

5% of band earnings
£6,136–£50,000

3% of band earnings
£6,032–£46,350

Total minimum contribution

8% of band earnings
£6,136–£50,000

5% of band earnings
£6,032–£46,350

*Assuming employer pays minimum required by law

For many auto-enrolled employees the increased pension contribution will undo the effects of the changes to income tax and NICs. For example, in 2019/20 an English resident employee earning £27,000 a year will see an annual saving in income tax of £130 and an NIC saving of £24.96. But if their employer pays the minimum 3% contribution, the employee’s pension contributions net of tax relief) will rise by £331.33, leaving a net income loss of £176.37 – or £14.70 a month.

Worst affected outside Scotland are those earning £50,000 a year, who suffer from the higher contribution percentage, higher NIC and pension contribution thresholds plus a loss of higher rate relief. Their 2019/20 income tax saving is £860, while their NICs bill rises by £340.04 and their pension contributions (net of tax relief) rise by £1,028.84, producing a net income shortfall of £508.88 – £42.41 a month.

Pensions – the lifetime allowance

The lifetime allowance, which sets the effective maximum tax-efficient value of pension benefits, will rise in line with inflation from £1.03 million to £1.055 million for 2019/20. There is no corresponding increase to the annual allowance, which remains at a maximum of £40,000, subject to the taper and money purchase annual allowance rules.

Entrepreneurs’ relief

From 6 April 2019 entrepreneurs’ relief will change as follows:

  • The minimum period throughout which the qualifying conditions for the relief must be met will increase from 12 to 24 months; and
  • Individuals can qualify for the relief where their shareholding is diluted below the 5% qualifying threshold by the raising of new shares for commercial purposes after 5 April 2019.

Non-contractual termination payments

The income tax treatment payments in lieu of notice (PILONs) was overhauled from April 2018. While the first £30,000 of a non-contractual termination payment will continue to be tax-free, from 6 April 2020 employer NICs (but not employee NICs) will be charged on the excess over £30,000.

Capital gains tax (CGT) – residential properties

From 6 April 2020 there will be the following changes to CGT on residential property:

  • UK residents making a chargeable disposal of residential property must deliver a return to HMRC, and pay the tax, within 30 days following completion; 
  • The estimated CGT due must be paid by the same date;
  • Lettings relief of up to £40,000 will only be available where the owner of the property is in shared occupancy with the tenant; and
  • The final period principal private residence exemption will be reduced from 18 months to nine months. The 36-month final period exemption will remain for disabled individuals or those in a care home.

Venture capital trusts

The Finance Act 2018 made a range of revisions to the venture capital trust (VCT) legislation, not all of which took immediate effect. From 6 April 2019:

  • The proportion of VCT funds that must be held in ‘qualifying holdings’ will increase from 70% to 80%; and
  • The period for reinvestment of gains on disposal of ‘qualifying holdings’ will increase from six to 12 months.

 

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