Taking stock of Budget 2020

Although the coronavirus has been dominating the conversations of business owners and managers, there is also a lot of reflection on Chancellor Rishi Sunak's first Budget. We caught up with Page Kirk tax specialist, Nigel Woodward, to ask some important questions.

Income Tax, Capital Gains Tax & National Insurance

Question:

How will the average worker benefit from any changes?

Answer:

The personal allowance and basic rate limit remained unchanged for 2020/21, apart from the cost of living increases to blind person's allowance and married couples allowance. The capital gains tax annual exempt amount has, meanwhile, increased from £12,000 to £12,300. At the same time, the national insurance Class 1 primary threshold has increased to £9,500 per year, giving a saving of approximately £104 per annum for the average worker.

For the self-employed the national insurance saving works out at just over £78 per annum.

Inheritance Tax

Question:

It was touted that this Budget might provide an opportunity to introduce major reforms to the current Inheritance Tax legislation, including a reduction of the rate from 40% to 10%, removal of lifetime gifting allowances and the scrapping of business property relief (BPR). Did anything happen?

Answer:

In short, no. there was no mention of any simplification or changes. The tax rate remains at 40%, after the nil rate band of £325,000 per person. This can be extended on a main residence by £150,000, which will be increased to £175,000 from next month. It takes the inheritance tax thresholds for individuals' estates in 2020/21 to a maximum of £500,000. Married couples and those in civil partnerships can pool their individual allowances, taking the total annual exemption to £1,000,000.

Investors holding certain AIM shares or unlisted investments for two years, and up until death, can still avoid IHT under BPR rules.

Pension tax changes

Question:

I am a high earner (over £100k). How will the new pension tax changes affect me?

Answer:

The adverse effect of pension changes introduced in 2016 has seen some high earners, such as doctors, having to refuse overtime in order to protect their take-home pay. This has arisen as a result of the tapering of the pensions annual allowance, which limits the maximum amount that individuals can contribute towards their pension pots.

Currently, for those with a threshold income over £110,000 (excluding pension contributions), the pension allowance is reduced by £1 for every £2 of adjusted income (income + pension accrual) over £150,000 earned. From 6 April 2020, the threshold income figure has increased from £110,000 to £200,000 and the adjusted income figure has increased from £150,000 to £240,000. Therefore, anybody with a threshold income of less than £200,000 per annum will not be affected by the tapering provisions and will receive the full annual allowance.

The minimum tapered annual allowance, currently £10,000, will be reduced to £4,000, meaning those with an income of over £300,000 will see a reduction in their annual allowance and pay more tax as a consequence.

Also, as an aside, it is worth mentioning that the lifetime allowance for pensions will increase in line with CPI, rising to £1,073,100 for the tax year 2020/21.

Employment Allowance

Question:

I employ full and part-time employees in my business. Will the increase in the Employment Allowance benefit my business?

Answer:

The government will increase the Employment Allowance from £3,000 to £4,000 from April 2020. Legislation will be introduced immediately after the 2020 Budget.

Under current law, Employment Allowance can be claimed by a business or charity, including community amateur sports clubs, paying employers' Class 1 National Insurance.

You can also claim if you employ a care or support worker.

You cannot claim if:

• you are the director and the only employee paid above the Secondary Threshold
• you employ someone for personal household or domestic work, unless they are a care worker
• you are a public body or business doing more than half your work in the public sector, unless you are a charity
• you are a service company working under IR35 rules and your only income is the earnings of the intermediary, such as your personal service company, limited company or partnership

Employers start paying Class 1 national insurance when an employee's pay exceeds the secondary class 1 threshold. For 2020/21 this will be £169/week, £732/month and £8,788/year.

The Employment Allowance reduces an employer's Class 1 national insurance liability.

Employers with a Class 1 NIC liability of up to £3,000 do not have to pay any Class 1 NIC to HMRC. From April 2020, this will increase to £4,000.

The Employment Allowance can be claimed against employer's Class 1 NIC incurred on full and part-time pay.

It is being reformed from April 2020 to restrict access to employers whose NICs liability in the previous tax year was under £100,000.

Entrepreneurs Relief

Question:

I'm thinking about selling my business. Will recent changes affect me?

Answer:

The changes announced in the Budget to Entrepreneurs Relief will affect individuals who dispose of all or part of their business; individuals who dispose of shares in the personal company; and trustees who dispose of business assets.

The change applies to gains made after Budget Day, 11 March 2020, but there are special provisions that apply to disposals entered into before 11 March that have not been completed.

The measure reduces the amount of gains taxable at the lower rate of 10% from £10,000,000 to just £1,000,000.

The rules also provide that the new lifetime limit must take into account the value of Entrepreneurs Relief claimed on gains made in the past.

The effect of the new rule is to double the capital gains tax rate from 10% to 20% on gains qualifying for ER, where the lifetime limit of £1,000,000 of gains is exceeded.

Tax-free Savings

Question:

Is there any way of increasing my tax-free savings?

Answer:

The usual ISA annual subscription limit for those over 18 remains unchanged at £20,000 for 2020/21. However, the annual subscription for a Junior ISA has increased from £4,368 to £9,000.

Landlord Tax Relief

Question:

Are there any changes which will affect the way my rental income is taxed?

Answer:

As already previously communicated, private individuals will not be able to recover mortgage interest as a business expense; they will only get a tax credit based on 20% of the mortgage interest repayments, from April 2020.

This means that higher and additional rate taxpayers will only receive tax relief at the basic rate.

If you would like any more information about how the budget will affect you and your business, please contact us on 0115 955 5500 or email enquiries@pagekirk.co.uk.