Highlights from the Budget 2020

In his first Budget as chancellor, Rishi Sunak unveiled several big spending initiatives and supported the government’s ambition for a ‘fair and sustainable tax’ system. Unsurprisingly, the focus was on the COVID-19 coronavirus pandemic and the £30 billion fiscal stimulus the UK will provide to support the economy, the NHS and improved statutory sick pay rules.

The Bank of England have also announced an emergency cut to the base interest rate from 0.75% down to 0.25% to try to help to stabilise the economy amid the coronavirus outbreak.

The majority of the following changes will take effect in the new 2020/21 tax year beginning Monday 6th April.

Business Taxation

  • No change to Corporation tax or VAT.
  • £1m is the new Entrepreneurs’ Relief lifetime limit, after being cut from £10m (with immediate effect). Entrepreneurs who sell their business could face an increase to the amount of Capital Gains Tax (CGT) they may have to pay. Entrepreneurs’ relief means that CGT is payable at 10% on gains up to a lifetime limit. Any capital gains on the sale of businesses which exceed the limit will be taxed at 20% for higher and additional rate taxpayers.

Personal Taxation

  • Income tax rates bands and allowances in England and Wales remain unchanged.
  • The annual Capital Gains Tax Allowance will increase to £12,300 for individuals (and personal representatives) and to £6,150 for trustees of settlements, for disposals in the 2020/21 tax year.
  • £9,000 is the new tax threshold for National Insurance Contributions (formerly £8,632), meaning employees and the self-employed will not have to start paying NI contributions until their earnings reach £9,500 (the primary threshold). This change was expected in the Budget 2020 and is in line with the Government’s aim to increase these thresholds to £12,500, the point at which individuals start to pay income tax.
  • RNRB going up: The Residence Nil Rate Band will increase from £150,000 to £175,000 from April 2020, delivering on the Government’s commitment to allow some couples to leave tax-free inheritance of up to £1,000,000 to future generations.

Savings

  • The ISA subscription limit will remain at £20,000 but the amount you can save into a Junior ISA or a Child Trust Fund will increase from £4,368 to £9,000.
  • The Budget 2020 has brought clarity on the calculation of the top slicing relief for investment bonds. HMRC recently updated their guidance on the calculation of this relief and legislation will now be introduced to clarify how an individual’s allowances are applied in determining the amount of relief available. The draft legislation also confirms that, for the purpose of calculating top slicing relief, allowances must be used against all other income before it can be applied to the bond gains.

Pensions

  • The pensions annual allowance limit remains the same at £40,000 with the lifetime allowance limit increasing to £1,073,100.
  • There will be a £90,000 increase to the tapered annual allowance thresholds. Those with income over £300,000 could see their tapered annual allowance reduced to £4,000. This was expected, but the good news is that it was significantly more than expected, saving many high-earners from significant tax bills and complex calculations.
  • The new flat rate State Pension is increasing from £168.60 to £175.20 per week.
  • To address a discrepancy in the level of tax relief that those earning under the personal allowance are entitled to, the Government will be launching a ‘call for evidence’ to help these individuals to get basic rate relief on all of their contributions.

If you wish to discuss how The Budget 2020 changes could impact you, please contact our Independent Financial Advisers.

For more information on tax year end, download our free ‘Financial Guide to Tax Year End 19/20’.

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