Though £30 billion in measures related to Coronavirus will rightly take the headlines, there were important changes to pensions and Entrepreneurs’ Relief in today’s budget.
Key takeaways from today’s Budget
Tapered Annual Allowance thresholds increased by £90,000
The government was under increasing pressure to take action in respect of the tapered annual allowance as the high effective tax rate this can result in was disincentivising high earning NHS workers from taking on more hours.
Broadly speaking, individuals with taxable income plus employer pension contributions (adjusted income) in excess of £150,000 p.a. currently have their annual allowance reduced from £40,000 p.a. on a £2:£1 basis, down to a minimum of £10,000 p.a. when their adjusted income is £210,000 p.a. or more.
Today, Chancellor Rishi Sunak announced an increase of £90,000 to the limit tapering kicks in, meaning that only individuals with adjusted income in excess of £240,000 will have a tapered annual allowance.
Sunak claims that this move will take 98% of NHS consultants and 96% of GPs out of the tapered annual allowance regime altogether, but the change is not limited to doctors and therefore there will be significant opportunities for many more high earners to take advantage of additional tax relief in the new tax year.
It was not all good news however, with individuals with an adjusted income of over £300,000 p.a. being restricted to pension contributions of just £4,000 p.a. gross from 2020/21 onwards.
Entrepreneurs’ Relief lifetime limit reduced from £10m to £1m.
There had been rumours that this relief, which reduces the tax payable when a business owner sells or liquidates their company from 20% to 10%, was to be scrapped in the budget, so a reduction rather than the removal of this relief will be welcomed.
Junior ISA and Child Trust Fund allowances to increase by more than 100%.
Allowances will increase from £4,368 p.a. to £9,000 p.a. in 2020/21 to significantly increase tax free saving opportunities on behalf of children.
Other key notes
- ISA allowance unchanged. This will remain at £20,000 in 2020/21.
- National Insurance Threshold to increase from £8,632 to £9,500. This will save 31 million people c. £100 p.a.
- 2% stamp duty surcharge for non-residents introduced.
- Corporation tax to stay at 19% in 2020/21 as expected.
The big winners from this year’s Budget were some additional rate tax payers who will be able to claim up to £13,500 in additional tax relief in the new tax year as their pensions annual allowances increase by up to £30,000.
However, individuals with an adjusted income of over £300,000 will lose out as their ability to contribute into pensions is all but taken away from them, as do business owners who will pay 10% more tax on the sale or liquidation of their businesses in excess of £1m over their lifetimes.
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