Rishi Sunak’s first Budget today was focused on how to address the potential economic fallout from the global Coronavirus outbreak with £30bn spending package, complementing the UK Bank of England’s 0.5% Base rate cut earlier in the day to just 0.25%. As such, his statement contained a number of short-term measures, particularly ensuring the NHS has sufficient budget to cope and extending statutory sick pay rules that affect millions of workers. This overshadowed the original brief of a large investment in infrastructure and the Northern Powerhouse.
The Office for Budget Responsibility (OBR) said extra spending on government departments and investment represented the biggest Budget “giveaway” since 1992 and will add around £100bn to public borrowing by 2024.
Mr Sunak’s Budget aims to supports the government’s ambition for a ‘fair and sustainable tax’ system. In fact, from a personal finance perspective, it was a quiet Budget. Several expected announcements did not happen, such as a radical reform of inheritance tax, scrapping of Entrepreneurs Relief, or an announcement of a widespread review of pensions tax relief. However, there was good news for high earners in respect of pensions with a large increase in the pension Tapered annual allowance.
The Autumn Budget may contain more radical proposals in respect of pensions and savings depending on the economic climate and progress on Brexit trade negotiations.
Income tax
- Starting rate for savings tax band – from savings income that is subject to the 0% starting tax rate remains at £5,000.
- Income tax bands and Income tax rates remain unchanged
Income tax band for 2020/2021:
Basic Rate £1 – £37,500
Higher Rate £37,501 – £150,000
Additional Rate Over £150,000
It is significant that income tax bands remain unaltered as this will raise additional tax over time as average incomes rise, a phenomenon known as ‘fiscal drag’.
Tax rates remain unaltered.
National Insurance
- The threshold at which employees will begin paying class 1 National Insurance increases from £8,632 to £9,500 from 6 April 2020. This will benefit lower paid workers in particular.
Corporation Tax
- The Government has decided not to reduce the rate of corporation tax from the planned 19% to 17% and instead it will remain unchanged at 19% from 1 April 2020, raising more tax in future years.
Capital Gains Tax
- Capital Gains Tax: Reduction in the Entrepreneurs’ Relief lifetime limitFrom 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief (which offers a reduced 10% rate of Capital Gains Tax on qualifying disposals) will be reduced from £10 million to £1 million. The Government claims that the change will continue to encourage genuine risk takers and entrepreneurs’ in a fair way, with over 80% of those using the relief unaffected.
- CGT Annual Exemption will increase from £12,000 to £12,300.
Inheritance Tax
- Other than the planned increase to the Residence Nil Rate Band (from 150,000 to 175,000 from 6 April 2020), there are no other changes to Inheritance Tax.
Pensions
- Changes to annual allowanceThe standard annual allowance in 2020/21 will remain at £40,000.
However, to support the delivery of public services (particularly health services) the two tapered annual allowance thresholds will be raised by £90,000.
Therefore, from 2020-21 the:a) ‘threshold income’ will be increased from £110,000 to £200,000; and
b) ‘adjusted income’ will be increased from £150,000 to £240,000.
For those with a threshold income above £200,000 and an adjusted income above £240,000, their annual allowance will be reduced by £1 for every £2 that their adjusted income exceeds £240,000, down to a minimum (tapered) annual allowance of £4,000 (£10,000 in 2019/20).
This means that anyone with a threshold income above £200,000 and an adjusted income of at least £312,000 would have a tapered annual allowance of £4,000 in 2020/21.
There is no associated proposal to offer greater pay in lieu of pension benefits for senior clinicians in the NHS pension scheme.
This measure is primarily designed to enable most clinicians to work more hours without incurring pension tax charges. This should help to address the concerns raised by the British Medical Association.
This measure is estimated to cost £180m in 20/21 rising to £670m by 2024/25.
The Money Purchase Annual Allowance will remain at £4,000 to prevent the re-cycling of pension income.
- Change to lifetime allowanceThe standard lifetime allowance (SLA) will be revalued (in line with the annual increase in the consumer prices index (CPI) to September 2019) from £1,055,000 in 2019/20 to £1,073,100 in 2020/21.
- Consultation on the reform of Retail prices index (RPI) methodologyThe method for calculating the RPI, which is widely used in the pensions industry, for instance in relation to revaluing pension benefits in deferment and pension income payments, has been reviewed by the UK Statistics Authority (UKSA). A consultation will now run until 22/04/2020 with regard to making any changes at some point between 06/04/2025 and 06/04/2030.
Individual Savings Accounts (ISA)
- There are no changes to the adult ISA annual subscription limit for 2020-2, it remains unchanged at £20,000.
- The Junior ISA subscription will increase from £4,368 to £9,000.
Stamp Duty
- Non-UK resident Stamp Duty Land Tax (SDLT) surchargeA 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland will be introduced from 1 April 2021. The surcharge is in addition to the standard Stamp Duty rates as well as the 3% surcharge that the Government previously introduced for buy to let properties and second homes.
- Housing co-operatives: Annual Tax on Enveloped Dwellings (ATED) and SDLTThe government will introduce a relief for qualifying housing co-operatives from the ATED and 15% SDLT on purchases of dwellings over £500,000. The SDLT relief will take effect in England and Northern Ireland from the Autumn Budget and the UK-wide ATED relief from 1 April 2021 with a refund available for 2020-21.
Tax evasion and promoters of tax avoidance schemes
- HMRC’s continues to push its Promoter strategy. HMRC will publish a new strategy for tackling the promoters of tax avoidance schemes with an aim of driving those who promote tax avoidance schemes out of the market, disrupt the supply chain to stop the spread of marketed tax avoidance, and deter taxpayers from taking up the schemes.
IR35 Changes to Go Ahead
Changes to off payroll working, often referred to as IR35, will be included in the Finance Bill. This will see large and medium sized private companies becoming responsible for making the decision as to whether contractors working for them should be included on their payroll and deduct PAYE and NIC.
6 April 2020 tax rates
| TAX YEAR 2019 TO 2020 | TAX YEAR 2020 TO 2021 | |
| PERSONAL TAXATION | ||
| Income tax bands | ||
| Basic | £1 – £37,500 | £1 – £37,500 |
| Higher | £37,501 – £150,000 | £37,501 – £150,000 |
| Additional | Over £150,000 | Over £150,000 |
| Income tax rates (main rate) | ||
| Basic | 20% | 20% |
| Higher | 40% | 40% |
| Additional | 45% | 45% |
| Starting rates for savings income | 0% | 0% |
| Income tax rates (dividends) | ||
| Basic | 7.5% | 7.5% |
| Higher | 32.5% | 32.5% |
| Additional | 38.1% | 38.1% |
| Income tax allowances | ||
| Personal allowance | £12,500 | £12,500 |
| Starting rate for savings income | £5,000 | £5,000 |
| Dividend allowance | £2,000 | £2,000 |
| Personal savings allowance | £1,000 (BR) £500 (HR) £0 (AR) | £1,000 (BR) £500 (HR) £0 (AR) |
| Capital gains tax rates | ||
| Main rates for individuals | 10% / 20% | 10% / 20% |
| Residential property (not otherwise eligible for relief) | 18% / 28% | 18% / 28% |
| Entrepreneur’s relief rate | 10% | 10% |
| Capital gains tax allowances | ||
| Annual exempt amount | £12,000 | £12,300 |
| Entrepreneurs’ Relif – Life time limit | £10,000,000 (gains up to 11 March 2020) |
£1,000,000
(gains after 11 March 2020) |
| Inheritance Tax | ||
| Nil rate band | £325,000 | £325,000 |
| Residential nil rate band (RNRB) | £150,000 | £175,000 |
| Rate (estates) | 40% | 40% |
| Reduced rate (10% of estate to charity) | 36% | 36% |
| Rate (CLTs) | 20% | 20% |
| TRUSTS AND ESTATES | ||
| Income tax bands | ||
| Standard rate band | Up to £1,000 | Up to £1,000 |
| Income tax rates | ||
| Trust rate | 45% | 45% |
| Dividend trust rate | 38.1% | 38.1% |
| Capital gains tax allowances | ||
| Annual exempt amount | £6,000 | £6,150 |
| Capital gains tax rates | ||
| Main rate | 20% | 20% |
| Residential property (not otherwise eligible for relief) | 28% | 28% |
| CORPORATE | ||
| Corporation tax | 19% | 19% |
| ISA Allowance | ||
| Adult ISA Allowance | £20,000 | £20,000 |
| Junior ISA Allowance | £4,368 | £9,000 |
Please note, this article is based on our understanding of the Budget and does not constitute tax or investment advice. The information should not be relied on to make decisions. If you would like investment advice based on your individual circumstances, please do not hesitate to get in touch 01392 875000 info@SeabrookClark.co.uk