Chancellor Rishi Sunak revealed his Budget on 11th March, but what will be the impact for private individuals?
The Chancellor promised provision for “security today” and a plan for “prosperity tomorrow” against the backdrop of the global outbreak of Coronavirus Covid-19. The 2020 UK Budget followed the Bank of England’s announcement earlier in the day of an emergency interest rate cut from 0.75% to 0.25% to support the economy.
As ever with tax, the devil is in the detail and this article takes a look behind some of the headlines to see if the Chancellor’s Budget delivers on its promises.
The impact of the UK Budget on Scottish taxpayers following the Scottish Government’s own budget on 6 February 2020 is covered in more detail in our Scottish Budget report.
The rates and bands for personal income tax, and land and buildings transaction tax, are devolved to the Scottish parliament. Scottish income tax applies to earnings of Scottish tax payers arising from employment, self-employment, pension income and property income.
The UK budget therefore deals with UK-wide aspects of private wealth, particularly in relation to savings and investment, capital gains tax (CGT) and inheritance tax (IHT), plus SDLT on properties in the rest of the UK. CGT and IHT are not devolved to the Scottish Government.
The income tax personal allowance remains at £12,500. There was also no change to the UK basic rate (20%), higher rate (40%) and additional higher rate (45%) thresholds.
The Government confirmed that from 6 April 2020 large and medium businesses in the private sector will become responsible for the assessment of an individual’s employment status when they are engaged to carry out work. This measure introduces an additional layer of compliance to the existing off-payroll working rules (IR35) and will bring parts of the private sector into line with the rules applied in the public sector.
The NICs primary threshold and lower profits limits for employees and self-employed will increase from £8,632 to £9,500 with effect from 6 April 2020. The Government have estimated that this will take around 1.1 million people out of paying Class 1 NICs and Class 4 NICs entirely. The Government’s stated objective is to ultimately increase the thresholds to £12,500.
Capital gains tax
There was no change to the rate of CGT for individuals where the rates are 10% for gains within the available basic rate band and 20% for gains within the higher rate and additional higher rate bands. The rate for trustees remains 20%. In both cases, the additional 8% surcharge on gains on residential property remains unchanged. The CGT annual exemption for individuals and executors will increase from £12,000 to £12,300 with effect from 6 April 2020 (£6,150 for trustees).
Entrepreneur’s relief (ER) reduces the effective rate of CGT from 20% to 10% on the disposal of qualifying business assets (e.g. the disposal of a business, a partnership interest or personal company shares). The Government have announced that ER will be retained but for disposals taking place on or after 11 March 2020 the ER lifetime allowance will be reduced from £10 million to £1 million. According to the Government, this will leave over 80% of those benefitting from this relief unaffected by this restriction.
The Government’s previously announced reforms to the rules for CGT principal private residence relief for capital gains arising on the disposal of a taxpayer’s main residence with come into effect from 6 April 2020. The period of automatic deemed ownership exemption prior to a disposal will be reduced from 18 months to 9 months and lettings relief will only continue to be available where the owner has been in shared occupancy of the property with the tenant.
The introduction of a 30 day window for the reporting and payment of CGT arising on the disposal of ‘second’ residential properties by UK residents will still to come into effect for disposals on or after 6 April 2020.
Savings, pensions and inheritance tax
The savings income that is subject to the 0% starting rate will continue to remain at its current level of £5,000 in the 2020/21 tax year.
The Individual Savings Account (ISA) annual subscription limit will remain unchanged at £20,000 for the 2019/20 tax year. There has not been an increase since 6 April 2017. The annual subscription limit for Junior ISAs and Child Trust Funds for 2020/21 is being more than doubled from £4,368 to £9,000.
The tapered annual allowances for pension contributions will both be increased by £90,000 with effect from 6 April 2020. The annual allowance of £40,000 is currently reduced by £1 for every £2 of ‘adjusted income’ above £150,000 (where an individual’s ‘threshold income’ exceeds £110,000), subject to a minimum reduced annual allowance of £10,000. The new thresholds will be £200,000 for ‘threshold income’ and £240,000 for ‘adjusted income’. The minimum reduced tapered annual allowance will reduce from £10,000 to £4,000.
The lifetime allowance for pension savings will increase in line with inflation, from £1,055,000 to £1,073,100 for the 2020/21 tax year.
There were no changes announced to IHT beyond the previously announced introduction of an IHT relief for compensation payments made from the Kindertransport Fund for deaths on or after 1 January 2019.
The IHT residence nil rate band will increase from £150,000 to £175,000 for deaths on or after 6 April 2020. For more on the IHT residence nil rate band read Martin Campbell’s article explaining how it works in practice.
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For further tax compliance or tax planning advice, please contact Martin Campbell or Alasdair Johnstone in our tax department. We would strongly recommend that you seek specialist advice tailored to your own circumstances before taking any action.
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