Budget overview by Nimesh Shah, a partner at accounting and tax advisory firm Blick Rothenber
Today marked the first Budget for the new Government, the first for a new Chancellor who has only been in the job a few weeks and the first for almost 18 months. It could, however, be the first of several budgets in 2020.
In a Budget overshadowed by COVID-19, the Chancellor started by announcing a package of measures aimed at easing the burden for individuals and businesses, including extending Statutory Sick Pay, offering a reduction to Business Rates for small businesses and allowing more time to pay taxes.
The Chancellor’s hands seemed to be slightly tied, and the only notable change for workers was an increase to the National Insurance threshold to £9,500 providing a £100 annual saving. For the first time in 10 years, there was no increase to the personal allowance, which remained at £12,500. In fact, there were no changes to the majority of the personal tax thresholds with the basic rate band, inheritance tax nil rate band and the high-income child benefit threshold all untouched.
In a measure aimed at appeasing NHS doctors and consultants, the pensions annual allowance will only begin to reduce for individuals with income above £240,000 (currently £150,000). However, at the other end of the spectrum, the minimum pensions annual allowance will be reduced to £4,000 (currently £10,000), affecting individuals with income above £300,000.
The Chancellor wielded an axe on Entrepreneurs’ Relief without going as far as abolishing it completely. In an overnight move (which has its own complexities), the Entrepreneurs’ Relief lifetime allowance was slashed from £10 million to £1 million, reducing the tax saving to £100,000. Apparently, the reduced limit should only affect 20% of entrepreneurs while raising £6.3 billion for the Treasury in the process over the next five years. Entrepreneurs’ Relief has gone full circle, as the limit was £1 million when first introduced in 2008 and worth £80,000. At a time when all UK businesses are facing hugely uncertain futures, it was disappointing that the Chancellor, only a few weeks into the job, decided to make the move without any review or consultation.
For the first time in many years, there were few changes to property taxes, with the Government moving ahead with a 2% SDLT surcharge for overseas buyers, which will take effect from April 2021 (presumably to encourage overseas buyers to transact before a higher SDLT cost applies). However, it’s worth noting that several property tax changes are due to take effect from 6 April 2020, including a reduction to main residence relief, the mortgage interest relief restriction taking full effect and reducing the timeframe in which capital gains tax should be paid to 30-days when selling a residential property.
The only giveaway for savers was an increase to the Junior ISA limit to £9,000. At a time when the stock markets have tumbled and interest rates cut, pensioners and savers may have been looking to the Government for some help.
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An increase in National Insurance Contribution (NIC) thresholds is a welcome move for all employees and the self-employed. The threshold will increase from £8,628 to £9,500, resulting in an annual NIC saving of £104 for employees and £78 for the self-employed.
Saving for retirement
From 2020-21, the thresholds used to calculate the tapering of the annual allowance will be increased so that workers with ‘adjusted net income’ of below £240,000 are not affected by the reduced limits.
The annual allowance is the total amount an individual and employer can contribute into their pension fund without incurring a tax charge.
Children under 18 years old
Junior ISA and Child Trust Fund annual subscription limits will increase by £4,632 from £4,368 to £9,000 – a massive uplift.
Entrepreneurs Relief (ER) Lifetime Allowance will be reduced from £10m to £1m affecting an estimated 20% of business owners. Going forward, only the first £1m of capital gains arising on the sale of an individual’s business will be taxed at 10%, with the remaining gain being taxed at 20%. Harsh anti-avoidance rules have also been introduced, backdated from April 2019.
Currently individuals with an ‘adjusted net income’ in excess of £210,000 have their annual allowance tapered to £10,000. From April 2020, the allowance will be tapered to £4,000 for individuals with total income above £300,000. Any excess contributions over the new tapered annual allowance will be subject to tax at 45%.
Companies investment in plant and machinery
The favourable – yet temporary – Annual Investment Allowance (AIA) of £1million will come to an end on 31 December 2020, reducing by 80% to £200,000 per year.
The forgotten in this Budget are pensioners. With no reforms or simplification to Inheritance Tax announced, with the personal allowance and income tax thresholds remaining unchanged, and as they do not pay NIC, inflation will drag more pensioners into higher taxes. Based on forecasted inflation at 2%, many pensioners will be worse off in real terms.