Spring 2020 Budget Summary

Rishi Sunak’s first Budget took place against the backdrop of the global outbreak of COVID-19. Not surprisingly the UK’s response to this was the initial focus – providing some much needed short term financial measures in the current uncertainty, from ensuring the NHS has sufficient budget to cope, to extending statutory sick pay rules that affect millions of workers.

The new Chancellor set out a Budget which supports the government’s ambition for a ‘fair and sustainable tax’ system.

Many rumours didn’t quite come to pass, we did not see an overhaul of inheritance tax, scrapping of Entrepreneurs Relief or an announcement of a wide spread review of pensions tax relief. But as expected we did see an increase in the Tapered annual allowance, and the good news was it was significantly more than expected, saving many from significant tax bills and the hassle of carrying out complex calculations.

Income tax

  • Starting rate for savings tax band – form savings income that is subject to the 0% starting tax rate remains at £5,000.
  • Income tax bands and Income tax rates remain unchanged
    Income tax band for 2020/2021:
    Basic Rate £1 – £37,500
    Higher Rate £37,501 – £150,000
    Additional Rate Over £150,000

National Insurance

  • The threshold at which employees will begin paying class 1 National Insurance increases from £8,632 to £9,500 from 6 April 2020.

Corporation Tax

  • The Government has decided not to reduce the rate of corporation tax from the planned 19% to 17% and instead it will remain unchanged at 19% from 1 April 2020.

Capital Gains Tax

  • Capital Gains Tax: Reduction in the Entrepreneurs’ Relief lifetime limit

From 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief (which offers a reduced 10% rate of Capital Gains Tax on qualifying disposals) will be reduced from £10 million to £1 million. There are special provisions for contracts for disposals entered into before 11 March 2020 that have not been completed and for certain exchanges of shares and securities made before 11 March 2020. The change ensures the Government continues to encourage genuine risk takers and entrepreneurs’ in a fair way, with over 80% of those using the relief unaffected.

Inheritance Tax

  • Other than the planned increase to the Residence Nil Rate Band (from 150,000 to 175,000 from 6 April 2020), there are no other changes to Inheritance Tax.

Pensions

  • Changes to annual allowanceThe standard annual allowance in 2020/21 will remain at £40,000.However, to support the delivery of public services (particularly health services) the two tapered annual allowance thresholds will be raised by £90,000.
    Therefore, from 2020-21 the:a)   ‘threshold income’ will be increased from £110,000 to £200,000; andb)   ‘adjusted income’ will be increased from £150,000 to £240,000.For those with a threshold income above £200,000 and an adjusted income above £240,000, their annual allowance will be reduced by £1 for every £2 that their adjusted income exceeds £240,000, down to a minimum (tapered) annual allowance of £4,000 (£10,000 in 2019/20).

    This means that anyone with a threshold income above £200,000 and an adjusted income of at least £312,000 would have a tapered annual allowance of £4,000 in 2020/21.

    There is no associated proposal to offer greater pay in lieu of pension benefits for senior clinicians in the NHS pension scheme.

    This measure is primarily designed to enable most clinicians to work more hours without incurring pension tax charges.

  • Change to lifetime allowanceThe standard lifetime allowance (SLA) will be revalued (in line with the annual increase in the consumer prices index (CPI) to September 2019) from £1,055,000 in 2019/20 to £1,073,100 in 2020/21.
  • Call for evidence on pension tax administrationThere is a tax relief inconsistency for those earning around, or below, the level of the personal allowance depending upon whether they are contributing to a:a)   relief at source (RAS) registered pension scheme, such as a personal pension; orb)   net pay arrangement.Those contributing to a RAS scheme currently benefit from UK basic rate income tax relief whilst those contributing to a net pay arrangement scheme do not.  Therefore, the government will consult regarding how to address this unequal treatment.
  • Inheriting a State Pension from an opposite sex civil partnerThe Civil Partnerships (Opposite-sex Couples) Regulations 2019 gave opposite-sex couples the choice of entering into a marriage or a civil partnership.The Budget provides funding to ensure that opposite-sex individuals who enter into a civil partnership can derive, or inherit, a State Pension from their (opposite-sex) civil partner.
  • Universal Credit: Additional support for claimants transferring to pension creditThis measure allows Universal Credit payments to be extended until the end of the assessment period in which the household reaches the qualifying age for Pension Credit and pensioner Housing Benefit.  This removes the potential gap in benefit entitlement that exists at the moment.
  • Consultation on the reform of Retail prices index (RPI) methodologyThe method for calculating the RPI, which is widely used in the pensions industry, for instance in relation to revaluing pension benefits in deferment and pension income payments, has been reviewed by the UK Statistics Authority (UKSA).  A consultation will now run until 22/04/2020 with regard to making any changes at some point between 06/04/2025 and 06/04/2030.

Individual Savings Accounts (ISA)

  • There are no changes to the adult ISA annual subscription limit for 2020-2, it remains unchanged at £20,000.
  • The Junior ISA subscription will increase from £4,368 to £9,000.

Top Slicing Relief

  • Following Marina Silver v HMRC, new legislation has been introduced to clarify the top slicing calculation for gains made on or after 11 March 2020. The new legislation confirms:For the purpose of the top slicing calculation reliefs and allowances are to be set against other income as a priority. Only if there are allowances remaining are they to be set against the chargeable event gain(s)When assessing the tax due on the annual equivalent (the gain(s) divided by the years made over) the availability of the personal allowance should be assessed using the annual equivalent not the full gain(s).This applies to both Onshore and Offshore life assurance and redemption policies.

Stamp Duty

  • Non-UK resident Stamp Duty Land Tax (SDLT) surchargeA 2% surcharge on non-UK residents purchasing residential property in England and Northern Ireland will be introduced from 1 April 2021. The surcharge is in addition to the standard Stamp Duty rates as well as the 3% surcharge that the Government previously introduced for buy to let properties and second homes.
  • Housing co-operatives: Annual Tax on Enveloped Dwellings (ATED) and SDLTThe government will introduce a relief for qualifying housing co-operatives from the ATED and 15% SDLT on purchases of dwellings over £500,000. The SDLT relief will take effect in England and Northern Ireland from the Autumn Budget and the UK-wide ATED relief from 1 April 2021 with a refund available for 2020-21.

Appendix 1
6 April 2020 tax rates

Personal taxation

Income tax bands Tax year 2019 TO 2020 Tax year 2020 TO 2021
Basic £1 – £37,500 £1 – £37,500
Higher £37,501 – £150,000 £37,501 – £150,000
Additional Over £150,000 Over £150,000
Income tax rates (main rate) Tax year 2019 TO 2020 Tax year 2020 TO 2021
Basic 20% 20%
Higher 40% 40%
Additional 45% 45%
Starting rates for savings income 0% 0%
Income tax rates (dividends) Tax year 2019 TO 2020 Tax year 2020 TO 2021
Basic 7.5% 7.5%
Higher 32.5% 32.5%
Additional 38.1% 38.1%
Income tax allowances Tax year 2019 TO 2020 Tax year 2020 TO 2021
Personal allowance £12,500 £12,500
Starting rate for savings income £5,000 £5,000
Dividend allowance £2,000 £2,000
Personal savings allowance £1,000 (BR) £500 (HR) £0 (AR) £1,000 (BR) £500 (HR) £0 (AR)
Capital gains tax rates Tax year 2019 TO 2020 Tax year 2020 TO 2021
Main rates for individuals 10% / 20% 10% / 20%
Residential property (not otherwise eligible for relief) 18% / 28% 18% / 28%
Entrepreneur’s relief rate 10% 10%
Capital gains tax allowances Tax year 2019 TO 2020 Tax year 2020 TO 2021
Annual exempt amount £12,000 £12,300
Entrepreneurs’ Relif – Life time limit £10,000,000
(gains up to 11 March 2020)
£1,000,000
(gains after 11 March 2020)
Inheritance Tax Tax year 2019 TO 2020 Tax year 2020 TO 2021
Nil rate band £325,000 £325,000
Residential nil rate band (RNRB) £150,000 £175,000
Rate (estates) 40% 40%
Reduced rate (10% of estate to charity) 36% 36%
Rate (CLTs) 20% 20%

Trusts and estates

Income tax bands Tax year 2019 TO 2020 Tax year 2020 TO 2021
Standard rate band Up to £1,000 Up to £1,000
Income tax rates Tax year 2019 TO 2020 Tax year 2020 TO 2021
Trust rate 45% 45%
Dividend trust rate 38.1% 38.1%
Capital gains tax allowances Tax year 2019 TO 2020 Tax year 2020 TO 2021
Annual exempt amount £6,000 £6,150
Capital gains tax rates Tax year 2019 TO 2020 Tax year 2020 TO 2021
Main rate 20% 20%
Residential property (not otherwise eligible for relief) 28% 28%

Corporate

Corporate Tax year 2019 TO 2020 Tax year 2019 TO 2020
Corporation tax 19% 19%
ISA Allowance Tax year 2019 TO 2020 Tax year 2020 TO 2021
Adult ISA Allowance £20,000 £20,000
Junior ISA Allowance £4,368 £9,000

The information provided in this article is not intended to offer advice.

It is based on Firco’s interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Firco cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.