The new Chancellor of the Exchequer, Rishi Sunak, delivered his 2020 Budget on Wednesday 11 March 2020. This update summarises some of the key announcements and tax rules relevant to personal financial planning.
Perhaps unsurprisingly, the Chancellor opened his inaugural Budget speech with reassurance that the government was taking decisive action to deal with the impact of the COVID-19 coronavirus. Stating that “our economy is robust, our public finances are sound and our public services are well-prepared”, Mr Sunak announced wide-ranging measures to help both people and businesses. Along with significant financial pledges, he outlined the government’s three-point plan to deal with the crisis. In short:
In addition to the specific measures announced in relation to COVID-19, the Chancellor confirmed plans for a broader £18 billion fiscal stimulus to support the economy this year.
Duties were frozen on fuel and all alcohol, and the ‘tampon tax’ was abolished – announcements that were met with much cheering from the house.
The latest figures from the Office for Budget Responsibility (OBR) had been revised down slightly since their March 2019 forecast, but still showed growth in GDP for each of the next five years. However, it should be noted that the OBR forecasts did not allow for the potential impact of COVID-19.
On the personal finance front, there were very few changes. For the majority of the UK’s workforce, the biggest announcement was the hike in the threshold at which individuals start to pay National Insurance Contributions (NICs). This will increase to £9,500 a year from 6 April 2020. All other income tax and NIC rates and thresholds remain unchanged.
On pensions, the standard annual allowance (AA) will remain at £40,000. However, the income threshold at which you become subject to the tapered AA will increase to £240,000 from 6 April (up from the current £150,000). This will be welcome news for many high earners – not just the doctors, GPs and medical consultants who the change was primarily designed to help. On the flip side, very high earners (those with annual income of £300,000+) will now be subject to more severe restrictions on their pension savings, with the minimum tapered AA reduced to £4,000 from 6 April.
Savings allowances for minors also received a boost – with the annual contribution limit for junior ISAs and child trust funds increased to £9,000 from 6 April.
In one of the few ‘clamp downs’ announced, business owners and investors who are eligible for entrepreneurs’ relief should be aware that the lifetime limit has been reduced from £10 million to £1 million with immediate effect.
The previously announced small increases to the pensions lifetime allowance (LTA), the annual exemption for capital gains tax (CGT) and the residence nil rate band for inheritance tax (IHT) will all go ahead as planned.