News & Insights

Budget 2020 Update

An initial reaction to the main personal tax provisions of the Budget.

At a risk of stating the obvious, this Budget has been a long time coming. It was nearly 17 months ago (and three chancellors) that the last one was delivered and, clearly, much has changed in that time.  From a private client perspective, there has been much conjecture over the last few weeks about what changes could be heading our way, particularly regarding the Inheritance Tax reliefs (Agricultural Property Relief and Business Property Relief). There had also been increasing speculation that, for Capital Gains Tax, Entrepreneurs Relief could be for the chop. In the end, however, this was undoubtedly a Covid-19 Budget, with a raft of new spending pledges, but with very little to say on the private client taxes. In this article we cover our initial reactions to the few changes that have been made to Income Tax, National Insurance, Capital Gains Tax, Stamp Duty Land Tax and Inheritance Tax.

Income Tax and National Insurance

The Chancellor had no major surprises or changes to announce as far as income tax and NIC are concerned.

On the income tax side, the main headline is that the taper thresholds for the pension annual allowance are to be increased, meaning that individuals will not start to lose their annual allowance until their adjusted net income exceeds £240,000. However, the minimum annual allowance has been reduced down to £4,000.

On the NIC side, the main point to note is that the Primary Class 1 threshold is to be increased to £9,500, although this was, of course, already announced.

Capital Gains Tax

As far CGT is concerned, however, as predicted the big change announced in the Budget relates to Entrepreneurs’ Relief. Whilst the chatter of the last few weeks had been that the Chancellor was due to scrap ER entirely, in the end the Chancellor fell short of this, instead reducing the lifetime limit back to its initial level of £1m, down from £10m. Obviously, we appreciate this will have a major impact for many of our clients and so please do feel free to contact us if you wish to take advice regarding the implications in advance of any future disposals.

On a separate note, and by way of reminder, the government had previously announced fairly major changes to CGT on residential properties that apply from the start of the coming tax year. In summary, all CGT due on the sale of residential properties will now have to be reported and paid within 30 days of the sale, rather than through the normal self-assessment procedures after the tax year has ended. The final period of relief for Principal Private Residences has also been reduced from 18 months down to 9 and Lettings Relief has now been effectively abolished. We have considered these in more detail in a separate article.

Stamp Duty Land Tax

Although the topic of housing did feature in the Budget, there were no major reductions to SDLT announced, as some had hoped. The only change of note is that from April 2021 the government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property.

Inheritance Tax

Finally, despite two independent reports proposing amendments, and a vast amount of speculation, there were no changes announced to IHT. Indeed, in the end, IHT didn’t even get its own section in the Budget document.

In conclusion, this was not necessarily the Budget we were expecting (or, we suspect, the Budget the Chancellor was expecting when he was appointed) and there still remain a number of unanswered questions, particularly around potential changes to the IHT regime. Clearly, our view is that changes to IHT remain on the political agenda and careful planning will need to be taken by clients given this change in the political and tax landscape. However, for the moment at least, we continue on into the new tax year with only a few, relatively minor, new rules to navigate.

If you have any questions around how the budget might have affected your own tax position, please do not hesitate to contact Ben Oliver, or anyone else in the Wills, Trusts and Estates Team, on 0118 951 6200.