The 2020 Budget was an unusual one for many reasons.
Firstly, the Chancellor of the Exchequer Rishi Sunak had been in place for less than 4 weeks at the time of delivering his statement. To compound this, Mr Sunak’s had the outbreak of the Coronovirus to contend with, undoubtedly meaning the budget will have had to undergo several revisions as emergency measures were formulated.
In another unexpected turn of events, the Bank of England announced an emergency interest rate cut of 0.5% at 7 am on the day of the Budget, bringing the base rate to its historic low of 0.25%.
Perhaps unsurprisingly, the Coronovirus took centre stage in Mr Sunak’s Budget as he looked to quell the growing fears of businesses and the general public alike. Outside of this, there were still a number of key announcements that will have the potential to impact our clients.
We take a look at these in further detail…
Changes to pension tapering
From 6 April 2020, the adjusted income limit will rise to £240,000 (increased from £150,000) and the threshold income limit will rise to £200,000 (increased from £110,000).
The current rules are that anyone earning over £110,000 (who has a total income of over £150,000, including their pension contributions) would not be able to contribute the full £40,000 annual allowance into their pension. Instead tapering rules apply, with a £1 reduction for every £2 that their income exceeds £150,000, down to a £10,000 minimum contribution.
From 6 April 2020 those earning up to £200,000 (or £240,000 with the pension contribution) will no longer be subject to tapering rules; allowing a full £40,000 annual contribution to be made.
However, for higher earners the government also reduced the minimum annual allowance under the tapering rules from £10,000 to £4,000. Therefore, anyone earning more than £300,000 will be worse off as a result.
The lifetime allowance for pensions will increase to £1,073,100 from 6 April 2020 in line with inflation.
Increase to JISA allowance
The Junior ISA allowance has more than doubled from £4,368 to £9,000 per annum from 6 April 2020.
Cut to Entrepreneurs Relief
Changes to Entrepreneurs’ Relief were widely predicted before the Budget, with many forecasting the complete abolition of the relief. Instead, there has been a significant cut to the lifetime limit from £10 million to £1 million.
The new £1 million lifetime limit on gains will take effect from 11 March 2020 and will take into account all previous disposals. Similarly, any events that have taken place before 11 March 2020 and that crystallise a gain after Budget Day, will be subject to the new rules.
Increase in NIC threshold
The threshold at which taxpayers start to pay NICs National Insurance Contributions (‘NICs’) will increase from 6 April 2020 to £9,500 per annum. This rise is part of the Government’s commitment to reduce contributions by the low paid. The increase applies to both employed (Class 1) and self-employed (Class 4) individuals.
Corporation tax
The government has scrapped the previously planned reduction in the corporation tax rate, so it will remain at 19%.
There were several other measures announced in relation to businesses including an increase to the Structures and Buildings Allowances (‘SBAs’) rate and enhancements to Research and Development (‘R&D’) tax credits for large companies. These are alongside the emergency measures introduced in the light of the Coronovirus, including an extension of Business Rates Relief and the changes to Statutory Sick Pay qualification.
For more information on any of the above outlined announcements and how it might affect your personal finances, please get in touch with one of our advisers.