The first Budget of 2020 may be the most unusual for years.
The UK somehow survived 2019 without a Budget. Finally, on 11 March the new Chancellor, Rishi Sunak, presented a postponed Budget, the first of two due this year. But it was against a vastly different backdrop from what had been expected as recently as a month earlier.
COPING WITH COVID-19
This was primarily an emergency Budget, focused on a “temporary, timely and targeted” response to the global economic shock from the COVID-19 pandemic. The emphasis on crisis handling was underlined by a coordinated 0.5% cut in the official Bank Rate made by the Bank of England a few hours before Mr Sunak rose to his feet. The Chancellor announced a range of measures aimed at alleviating the disruption to individuals and businesses over the coming weeks and months, including business rate cuts and extensions to statutory sick pay. Nevertheless, the Chancellor could not completely ignore the legislative backlog that had built up because of the earlier delay.
Alongside £12bn of COVID-19 measures, there were some limited longer-term announcements:
- The rules were eased for tapering the pensions annual allowance charge for 2020/21 onwards. Both the key trigger limits, the threshold income and adjusted income, were increased by £90,000. So, broadly speaking, if your total net income before tax (excluding pension contributions) is not more than £200,000 in 2020/21, your annual allowance will not be subject to the taper. However, if you are still caught by the rules, your minimum annual allowance could fall from £10,000 to as little as £4,000.
- The other main pensions allowance, the lifetime allowance, rises in line with inflation to £1,073,100 for 2020/21.
- The entrepreneurs’ relief lifetime limit for gains has been reduced to £1,000,000 from £10,000,000, taking it back to its original level when the relief was originally introduced 12 years ago.
- The starting point for employees’ and self-employed national insurance contributions (NICs) will rise from £8,632 to £9,500, providing a NIC saving of up to around £104 a year. However, the corresponding employer threshold will rise to only £8,788 in 2020/21.
- The personal allowance and higher rate threshold were both left unchanged, although some of the minor income tax allowances were increased in line with inflation. Earlier in the year, the Holyrood Budget kept the Scottish higher rate tax threshold unchanged for 2020/21 at £43,430, £6,570 below the level for the other parts of the UK.
- The rate of corporation tax stays at 19%, instead of falling to 17% as was previously planned. This non-move generated the largest source of additional tax revenue in the Budget.
- The Junior ISA and Child Trust Fund contribution limit was more than doubled to £9,000 per tax year. However, other ISA limits were once again left unchanged.
- Amendments to the rules regarding top slicing relief of life insurance policy gains.
- The capital gains tax annual exempt amount was increased to £12,300.
EXPECTED CHANGES OVERLOOKED
Several announcements had been expected but did not appear in the Budget. These included the reform of inheritance tax and a general restructuring of the pension tax rules. These gaps might be filled later this year in the autumn Budget.
If you need any information on how the changes announced in the Budget could affect you or actions you should consider before the next Budget, please contact us.
Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.
Tax laws can change. The Financial Conduct Authority does not regulate tax advice.