Budget 2020

Rishi Sunak finally delivered the government’s delayed and eagerly anticipated Budget on 11 March 2020. Battling with manifesto commitments, fiscal rules and the coronavirus outbreak, the chancellor focused, unsurprisingly, on spending announcements. While he turned occasionally to taxation policies, confirming rates for the tax year ahead, he opted in the main for tweaks to the system rather than a general overhaul. Speculation regarding potential changes to inheritance tax proved to be unfounded, but we may see more significant tax announcements made in the Autumn Budget.

This summary provides an overview of Budget items most likely to affect high-net-worth individuals and their businesses.

Income tax

• The personal allowance will remain at £12,500 for the new tax year.
• The dividends and savings allowance remain unchanged. 
• There are no changes to the rates of income tax.  
• Basic and higher rate-thresholds are frozen at £37,500 and £150,000 respectively. 
   

National Insurance Contributions 

• The minimum salary qualifying for National Insurance Contributions rose from £8,632 to £9,516 for both employed and self-employed workers.
   

Property taxes 

• Relief for loan interest on rental properties is now capped at 20% for private landlords. 
• A 2% stamp duty surcharge on purchases by non-UK residents of of residential property in England and Northern Ireland will be introduced from 1 April 2021. 
• The Annual Tax on Enveloped Dwellings (ATED) charges will be increased by 1.7% from 1 April 2020. 
   

Capital gains tax (CGT) 

• Headline rates of CGT remain unchanged. 
• The annual exemption will be increased to £12,300 for the new tax year. 
• The lifetime limit for capital gains qualifying for the reduced 10% rate of CGT through entrepreneurs’ relief (ER) has been reduced significantly from £10m to £1m. This lower cap will apply to all disposals made on or after 11 March 2020 and there are specific rules for  uncompleted transactions entered before 11 March 2020.  For taxpayers who have claimed ER on gains exceeding £1 million before 11 March 2020, no further ER can be claimed. 
• The rules governing Investors’ Relief were left unchanged. 
   

Pensions

• Tapering of the Annual Allowance (AA) will only be applied to taxpayers with threshold income exceeding £200,000 and adjusted income above £240,000. However, the minimum AA for those still subject to tapering provisions has been reduced from £10,000 to £4,000. 
• The Lifetime Allowance for the total value of pensions funds qualifying for preferential tax treatment has increased to £1,073,100 in line with the Consumer Price Index.
• Evidence will be gathered to consider the solution for those earning around or below the personal allowance and saving into a pension. Whether such individuals receive a top up on their contributions currently depends on the pension scheme administrator. A review will be conducted with a view to standardising these arrangements. 
   

Employment tax

• The Budget confirmed that Finance Bill 2020 will legislate on off-payroll rules in the private sector; these will be implemented from 6 April 2020. 
• The Chancellor announced a £1,000 increase in the employment allowance from £3,000 to £4,000. 
• Employers will receive a one-year exemption from National Insurance Contributions for armed-services veterans in their first year of civilian employment. 
   

Corporate tax  

• The main rate of corporate tax for the financial year beginning 1 April 2020 will not be reduced as previously announced: it remains at 19%. 
• Finance Bill 2020 will restrict companies’ use of carried-forward capital losses to 50% of annual capital gains from 1 April 2020. 
• The government will legislate for the Digital Service Tax (DST) in Finance Bill 2020 which will tax the revenues of certain digital businesses. The rate of tax will be 2% from April 2020. 
• From April 2020, the research-and-development expenditure tax credit rate will be increased from 12% to 13% to encourage an innovative economy. 
• From April 2021, large businesses will be required to notify Her Majesty’s Revenue and Customs (HMRC) when they take a tax position which could be subject to challenge. 
   

Partnerships   

• The government announced that Finance Bill 2020 will place it beyond doubt that Limited Liability Partnerships (LLPs) should be treated as general partnerships under income-tax rules. This announcement will continue to allow HMRC to amend LLPs’ members’ tax returns where the LLP operates without a view to profit. 
   

VAT and indirect taxes

• The rate of VAT on e-publications including e-books, e-newspapers, e-magazines and academic e-journals will be aligned with their hard copy counterparts at the 0% rate. 
• VAT charged on women’s sanitary products will be reduced to 0% from 1 January 2021. 
• The rate of fuel duty will remain frozen for the next tax year. 
   

Penalties and compliance   

• The government is taking further action to deter promotion of tax-avoidance schemes. Existing regimes to tackle avoidance will be extended in Finance Bill 2020/21 and HMRC’s strategy for tackling such abuse will be published. 
• The government will collect evidence on the case for improving standards in the tax-advice market; this should give taxpayers more confidence in advice received.  
   

Miscellaneous    

• The government will introduce a new Plastic Packaging Tax to incentivise the use of reusable plastic packaging. The measure will take effect from April 2022. 

For a complimentary, ‘no obligation’ meeting to discuss the impact of any of these announcements on your tax position, please contact Chris Harden or Byron Heard.