Income tax

The personal allowance and higher rate threshold will increase from 6 April 2019, bringing them to the levels promised in the 2015 Conservative manifesto.

The Government has brought forward its commitment to raise the income tax personal allowance and the 40% income tax threshold from 2020/21 to 2019/20. Consequently, the personal allowance for 2019/20 will increase to £12,500 (up from £11,850 in the current tax year) and the basic rate limit will rise from £34,000 to £37,500.

These thresholds will remain at the same levels for 2020/21. For future years, the personal allowance and higher rate threshold will increase in line with consumer price index (CPI).

Our comment:

"The early introduction of these increases will be welcomed by many taxpayers.

The Government’s analysis states that the changes will result in 32 million individuals’ tax bills being reduced in 2019/20 compared to 2015/16, and that the effect of the increase to the personal allowance will result in a typical basic rate taxpayer paying £1,205 less tax in 2018/19 than in 2010/11.

Not all taxpayers, however, will benefit from the increase to the personal allowance. Those on low incomes will not fully benefit from the increase, where their income is less than the personal allowance, or where the increase in after tax pay results in a reduction in their means tested benefits.

In addition, those with incomes above £100,000 will continue to see their personal allowances restricted for every £2 of income above this threshold. As the £100,000 limit has not changed despite increases in inflation, it is likely more people will fall into this category."

When will it apply?

This measure will apply from 6 April 2019.

Following a consultation on draft legislation, the Government has decided not to proceed with plans to include a shared occupancy test for rent-a-room relief.

Rent-a-room relief provides an income tax exemption for rents received by individuals who rent a room (or rooms) for residential purposes in their only or main residence. The exemption is currently £7,500.

The Government had previously announced that from 6 April 2019, it would introduce an additional ‘shared occupancy’ test for obtaining rent-a-room relief. The test would have required individuals to occupy the property at the same time as the tenant for at least some of the letting period.

The Government has decided that it will not go ahead with the introduction of this additional test in order to "maintain the simplicity of the system”.

Our comment

"The shared occupancy test was largely intended to prevent those letting their homes through Airbnb and other similar sites from benefiting from rent-a-room relief when the let was of the entire property.

The withdrawal of the legislation, however, may not be the positive news it initially appears. HMRC has always taken the view that letting the whole of the property disqualifies that individual from claiming rent-a-room relief. There is nothing to suggest that this view has changed. In fact, it is stated in the Budget that the Government will “ensure the rules around the relief are clearly understood”.

This may therefore be the case of the Government deciding that the existing legislation is sufficiently robust to target rent-a-room relief at the intended users. Those letting their property through Airbnb still need to carefully consider whether or they are eligible for rent-a-room relief."

HMRC's practice has always been to treat voluntary tax returns as if submitted in response to a statutory notice to file. Although saving additional administration work all round, the status of enquiry notices in such cases has been questioned, so legislating for the practice will give certainty for taxpayers and HMRC.

When a taxpayer submits a tax return without having been issued with a statutory notice to file, HMRC will nonetheless accept the return and process it as a ‘voluntary’ tax return. This effectively treats such returns as if submitted in response to a return notice.

HMRC has considered it has been able to do this under its discretionary collection and management powers.

There have been some recent legal challenges to this practice so legislation will be introduced, with retrospective effect, to put the practice onto a statutory basis. The intention is to remove any doubt for taxpayers that ‘voluntary’ tax returns have and will continue to be accepted as valid returns.

This will include returns submitted by individuals, partnerships, trusts and companies.

Our comment

"The self assessment regime requires a taxpayer to submit a tax return in response to a notice to file or to notify HMRC of a liability to tax. The latter generally leads to HMRC issuing a notice to file a return.

There are some occasions where the tax liability is notified to HMRC by the submission of an unsolicited return form. Processing these as if in response to a notice to file a return saves time where the self assessment is accepted.

Problems have arisen when HMRC wants to enquire into such returns. This change will help clarify the position and avoid disputes over the validity of enquiry notices and related closure notices."

When will it apply?

It will apply retrospectively from the date Finance Bill 2018-19 receives Royal Assent to tax years 1996-97 onwards.