2020 BUDGET BREAKDOWN

Weatherbys Private Bank




WHAT THE 2020 BUDGET MEANS FOR YOUR MONEY

The most headline-grabbing aspect of Rishi Sunak’s first Budget as chancellor was the scale of spending involved to offset the worst potential effects of coronavirus, and in the longer run, to upgrade the UK’s infrastructure.

The focus on the big picture meant that many of the potential changes being bandied about prior to the Budget didn’t happen - although in some cases this may mean they’ve simply been delayed, rather than jettisoned. Here’s what the chancellor’s changes mean for your personal finances. 

Earnings

The chancellor raised the threshold at which National Insurance Contributions start being paid, from £8,632 to £9,500, saving employees £104 and the self-employed £78.

What he didn’t do: income tax thresholds and personal allowances all remained unchanged. Fiscal drag therefore means that more and more people will be pushed into the higher-rate tax band over time as wages rise but thresholds remain static. Notably the cut-off point at which child benefit starts to be withdrawn remained unchanged at £50,000.

Pensions

At present, the annual pension savings allowance is £40,000. However, this allowance starts to taper down to £10,000 for those earning more than £110,000 a year. This has had the widely-publicised side-effect of landing NHS doctors with unexpected tax bills on inadvertent excess pension contributions, which in turn has forced them to cut their hours. 

In order to tackle this issue, the chancellor has raised the point at which the taper kicks in to £200,000, for the 2020/21 tax year. This is expected to solve the problem for almost all doctors, but of course it applies to high earners across the board.

However, the floor for the annual allowance has been lowered, so that once total income rises above £300,000, the annual allowance will fall to a minimum of £4,000, from the previous £10,000.

What he didn’t do: notably absent from the chancellor’s agenda was any change in pensions tax relief. There had been much speculation (indeed, it is a hardy perennial of the Budget season) that higher-rate tax relief on pensions contributions might be scrapped or replaced with a flat rate for all, but once again, the relief was spared.    

Please call us if we can help explain how the changes affect you personally.  

Savings and investments

The most significant change came to savings for children aged under 18. The annual allowance for the Junior Individual Savings Account (Jisa) will increase to £9,000 from the current £4,368. If you are tempted to save money into a Isa for your offspring, do remember that they take control of the pot at the age of 18, and they may have their own views as to what they want to do with it.

The capital gains tax allowance will rise from £12,000 this year to £12,300 from April 6th.

Prior to the Budget there was speculation that the chancellor would get rid of entrepreneur’s relief altogether. In the end he decided against this, but he did drastically reduce its scope. The lifetime limit was reduced from £10m to £1m, meaning that only the first £1m of capital gains from the sale of an individual’s business will be taxed at 10%, rather than 20%.

What he didn’t do: another notable absence from the Budget was any change to the inheritance tax regime. The Office for Tax Simplification had produced a report suggesting potentially sweeping changes to the tax last year, but it was perhaps viewed as too big a can of worms to open, particularly given the current focus on containing the coronavirus.  

Property

A new stamp duty surcharge of 2% will be brought in from April 2021 for non-UK residents buying property. This is on top of the existing 3% surcharge on second homes and buy-to-let properties.

What he didn’t do: there had been speculation around potential measures to reduce stamp duty, help first-time buyers, or to introduce a so-called ‘mansion tax’. However, on the domestic front, the chancellor instead chose to focus on boosting fund for building new housing, while flagging up a pending review of the planning system.

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