Budget 2018: our analysis

David Whiscombe gives some initial thoughts on the Chancellor’s taxation measures.

So: you’ve spent the last three years trying to plug a hole in the government’s finances.  Despite your valiant efforts, government debt remains eye-wateringly high and Brexit threatens to upset your figures further:  opposition “tax and spend” policies seem to have caught the imagination of a vociferous sector of the voting public and your prime minister has announced the end of austerity.  Oh – and you don’t have a parliamentary majority.  What do you do?

What Mr Hammond didn’t do was increase taxes.  Most pre-Budget fears to that effect proved groundless:

  • he didn’t reduce the VAT registration threshold (it will remain at £85,000 until at least 31 March 2022);
  • he didn’t increase rates of Income Tax or NIC (in fact he increased the personal allowance and the basic rate band);
  • he didn’t abolish Capital Gains Tax (“CGT”) Entrepreneurs’ Relief (though he did change it a bit – more of that later).

In fact, this was pretty much a giveaway Budget: he could even spare £420m to start fixing potholes.  Indeed, unless you happen to be a multinational corporation (especially if you’re a digital business) or a non-resident property investor (or, perhaps, a leader of the opposition who has to some extent seen his policies stolen and his guns spiked) it’s likely that you will not be unhappy with Mr Hammond’s efforts.

These are the main tax changes most likely to be relevant to our clients:


As foreshadowed in the 2017 Autumn Budget, the charge to tax on capital gains made by non-residents on the disposal of UK residential property will be extended from 6 April 2019 to gains made on commercial land and property.  The charge will extend to gains on disposals of an entity that derives 75% or more of its gross value from UK land.  Non-residents may also be affected by a proposed 1% Stamp Duty Land Tax surcharge, to be the subject of consultation in January.

Also as announced in the 2017 Autumn Budget, the rules requiring non-residents’ CGT on property gains to be paid within 30 days of completion are to be extended to UK residents (but only from 6 April 2020).

Owner-occupiers should note two changes, one welcome and one less so.  The welcome one is that the “shared occupancy” test that had been proposed to apply to rent-a-room relief will not now be applied.  Less welcome, CGT “main residence” relief will be further chipped away (from April 2020) in two ways:

  • first, the “final period” exemption is to be cut (again) to nine months (said by the Treasury, somewhat irrelevantly, to be “still twice the length of the average property transaction”);
  • second, lettings relief (which can exempt up to £40,000 of gain, or £80,000 for a jointly-owned property) will be available only for periods during which the owner is in shared occupancy with a tenant.

This second change is mystifying: in such circumstances the usual “main residence” relief would normally be due anyway and the availability of “lettings relief” would add nothing.

Entrepreneurs’ Relief

Entrepreneurs’ Relief is to be fine-tuned.  With immediate effect, the requirement that you possess 5% of the ordinary share capital and 5% of the voting rights is strengthened to require, broadly, ownership of 5% of all equity rights (thus countering some imaginative uses of special share classes created specially to exploit the relief).  And for most disposals after 5 April (there are transitional rules to deal with businesses that ceased to trade before 29 October 2018) the period during which the qualifying conditions must be met before relief is available will be increased from one year to two.

Also from next April a couple of useful extensions to the relief are introduced:

  • the first is a mechanism to preserve relief where you are diluted below 5% on the raising of fresh capital;
  • the second is an aggregation provision that affords relief where within the two-year qualifying period a business has been carried on first as a sole trade or partnership and then through a company.


A new “Structures and Buildings Allowance” will give tax relief at 2% a year for the cost of constructing commercial (non-residential) buildings and structures, thus removing one of the “tax nothings” that has rankled for years.  It will apply only where contracts are entered into on or after 29 October but extends to buildings in the UK or overseas, provided they are used for a trade, a profession or vocation, or a property letting business to the extent that the profits of the activity are, broadly, subject to UK tax.  Draft legislation is not yet available: there will be consultation on the detailed rules.

Capital allowances

Other capital allowances changes include the reduction of the “special rate” allowance (applying to things like “long-life assets”, “integral features” in buildings and some cars) from 8% per annum to 6%.  However, this will not affect most expenditure of most businesses because from 1 January 2019 until 31 December 2020, the annual limit for Annual Investment Allowance (“AIA” – giving full tax write-off for qualifying expenditure) will be increased to £1m.  The main assets excluded from AIA are cars; the taxpayers who are principally denied it are partnerships (including LLPs) with one or more corporate partners.

Intangible Assets

It has for some years now been the case that any Substantial Shareholding Exemption available when a subsidiary company is sold out of a group also extends to any capital gains “exit” charge that would otherwise arise: but, anomalously, it does not extend to any substantially identical charge that arises under the Intangible Asset regime.  That anomaly is at last to be corrected in relation to de-grouping occurring on or after 7 November 2018.

The Intangible Asset regime is also to be reformed to restore, in some circumstances, tax relief for goodwill acquired in the context of an acquisition of a business with eligible intellectual property.  Draft legislation is to follow.

Research and Development

One of the major successes of tax policy has been the extent to which Research and Development (“R&D”) tax relief has encouraged innovation.  However, HMRC have become concerned at the level of fraudulent claims and have responded by reintroducing a cap on the “payable credit” part of the relief.  From April 2020 this will be capped at three times the claimant company’s total PAYE and NIC liability for the relevant year.  It’s estimated that this should affect only about 5% of (legitimate) claimants; and there is to be consultation on further minimising the effect on genuine businesses. In the meantime, you can find out more about the current system on our R&D page.

Contracting and freelancing

Finally, Mr Hammond has tackled so-called “artificial self-employment”.  Despite an unimpressive record of success in the courts where arrangements have been challenged, HMRC have persuaded themselves (if no-one else) that compliance with the “IR35” legislation is much lower than it should be.  Last year, public sector end-users were, broadly, made responsible for its operation: undeterred by the ructions thereby caused, and after a suspiciously short period of consultation, HMRC will now extend this to the private sector from 6 April 2020.  In the period between then and now, HMRC promise to provide “extensive guidance and support” to affected businesses.  Although small business end-users will be excluded, this extension will not be welcomed either by contractors themselves or by their customers.

So: back to holes.  Will a change of direction—from filling one in the government’s finances to filling them in the roads—dig Mr Hammond out of one?  Only time will tell.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

More Budget 2018 coverage from BKL:



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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