Current headlines are dominated by Coronavirus and the early announcements in the budget were no different, with £30bn in total announced to help try to curb the effects of the virus.
Looking past this, there were a few other key take-aways in the budget, which are summarised below:
Tapered Annual Allowance
The Tapered Annual Allowance has been a headache for many for a while and has often been something heavily criticised, there have been calls for it to be abolished. For those who were lucky enough to be caught by the Tapered Annual Allowance, a complex calculation takes place to assess total income for the year. First, the “threshold income” is assessed and if this above £110,000, then a calculation for “adjusted income” takes place.
If the adjusted income (which includes pension contributions) is above £150,000 for the year, the pension Annual Allowance is tapered away at a rate of £1 for every £2 of income above this level. If someone has pension input above their tapered annual allowance, with no carry forward of unused allowance available, an Annual Allowance tax charge is the result.
This has come in for strong criticism of late, especially as it has led to many Doctors and GPs not taking part in overtime, to prevent them incurring the annual allowance tax charge.
The announcement that the taper will increase by £90,000 was a welcome move. The calculation will remain the same, however the threshold income level will be £200,000 and the adjusted income level will be £240,000.
This should see that 98% of consultants and 96% of GPs are out of the taper altogether. Something which, given the current health crisis, will be very beneficial.
The Junior ISA allowance is set to more than double, from the current amount of £4,368 up to £9,000 pa. This is a significant increase of the allowance and if it remains at this level, in theory, parents could build a tax-free pot of £162,000 by using the allowance in full each year, by the time their child reaches age 18, assuming no growth and/or interest.
The standard ISA allowance for adults will remain at £20,000.
Many had been hoping for a simplification of the IHT regime, with recommendations for this having come from the report published by Office of Tax Simplification (OTS).
IHT was barely mentioned however, with no changes proposed during this Budget.
As a reminder however, the residence nil rate band will increase to £175,000 per person from 6th April 2020, or up to the value of an individual’s share in the main residence.
The income tax bands will remain unchanged for 2020/21 and the Personal Allowance will remain at £12,500. The income tax bands (after the Personal Allowance) are as follows:
Basic Rate (20%) – £1 to £37,500
Higher Rate (40%) – £37,501 to £150,000
Additional Rate (45%) – £150,001+
The threshold for paying Class 1 National Insurance (for employees) has been increased to £9,500, which will be a saving of £85 pa on average the Chancellor expects.
Other key points noted in the budget are listed below:
- The lifetime limit on Entrepreneurs Relief has been slashed from £10m to £1m.
- Fuel Duty has been frozen for the 10th consecutive year.
- Duties on spirits, beer, cider and wine will be frozen.
- Economic growth is projected to be 1.1% for the year, revised downwards from the 1.4% predicted last year – although this does not take into account the impact of coronavirus and would still be the slowest growth the UK has had since 2009.
- Inflation is forecast to be 1.4% for the year – again this does not take into account coronavirus.
- £2.5bn has been pledged towards fixing potholes and roads being resurfaced over the next 5 years.
- The pension Lifetime Allowance (LTA) will increase to £1,073,100 from 6th April 2020 – this figure increases by CPI each year.
- CGT annual exempt amount is increased to £12,300.