Earlier this month, Rishi Sunak delivered the first Budget of the new Conservative government. With a large majority behind him, the theme of the Chancellor’s speech was to deliver the promises made in the party’s election manifesto or, as Sunak himself repeatedly said, to ‘get things done’.
Of course, the coronavirus outbreak has significantly changed the Chancellor’s plans. Opening his speech, Sunak said: “We will rise to this challenge – this virus is the key challenge facing our country today.”
With a package of measures designed to support the economy through the spread of coronavirus, plus a pledge to deliver manifesto promises, who were the winners and losers in the 2020 Budget?
Even before the Budget began, the Bank of England had already announced measures to support the economy, including an emergency reduction in the Base rate from 0.75% to 0.25%. The Bank subsequently reduced the Base rate to a record low of 0.1%.
Whether you benefit from this depends on the type of mortgage you have:
- Fixed rate – your repayments won’t change
- Tracker rate – you should see a reduction in your repayments as your interest rate is directly linked to the Base rate
- Variable rate – if your mortgage is linked to your lender’s Standard Variable Rate (SVR) then you may have to wait and see if you benefit. After the Base rate was last cut in 2016, eight of the UK’s top 10 lenders reduced their SVR by the same amount soon after.
Those paying National insurance contributions
Delivering on a manifesto commitment, the Chancellor announced that the threshold for paying National Insurance contributions would rise, from £8,632 to £9,500.
This equates to a tax cut for around 31 million people, saving a typical employee around £100 a year.
The Chancellor acknowledged that the coronavirus outbreak is likely to have a significant effect on the economy. So, he announced a £12 billion package of support to respond to the economic impact of the virus. Since then, a further package of measures has been announced to support the UK economy.
For businesses with fewer than 250 employees, the cost of any Statutory Sick Pay caused by the coronavirus (up to a limit of 14 days per individual) will be refunded to the company, in full, by the government.
The Chancellor also announced that:
- Under the Coronavirus Job Retention Scheme, HMRC will reimburse up to 80% of the wages of any ‘furloughed’ workers for three months, up to a maximum £2,500 per month
- Business rates for the next financial year for retail, leisure and hospitality firms will be abolished
- Businesses in the retail, hospitality and leisure sectors with a rateable value of under £15,000 will receive a grant of £10,000 while businesses with a rateable value of between £15,000 and £51,000 will receive a grant of £25,000
- Funding for local authorities in England would be provided, to enable grants of £10,000 to be made to around 700,000 businesses currently eligible for Small Business Rate Relief or Rural Rate Relief
- VAT payments have been deferred by three months
- A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £5m to support SMEs with a turnover up to £45 million, with the government providing a guarantee of 80% on each loan and covering the interest payments for 12 months
The Chancellor has since announced a package of measures to support self-employed workers. The government is offering a taxable grant of up to 80% of average earnings over the past 36 months (up to £2,500 per month), payable as a lump sum in June. This is available to self-employed workers with trading profits under £50,000 and who make the majority of their income from self-employment.
In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.
The government also announced that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).
The Chancellor also confirmed that the Corporation Tax rate would remain at 19%.
The Chancellor confirmed that, by 2024 (and economic conditions permitting), the National Living Wage should reach two-thirds of median earnings, equivalent to over £10.50 an hour.
Many people affected by the Tapered Annual Allowance
In recent months, there have been plenty of negative news headlines regarding the issue of the pensions Tapered Annual Allowance. Large numbers of NHS staff have turned down additional shifts because of the taper, which left many higher earners facing large tax bills.
Having promised an urgent review into the taper, the Chancellor announced that the thresholds at which the Tapered Annual Allowance came into effect would rise by £90,000.
Now, if your threshold income is above £200,000, then you will need to check if your ‘adjusted income’ (essentially all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is over £240,000.
If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.
According to the Chancellor, this will take 98% of NHS consultants and 96% of GPs out of the taper.
People saving for children
In the Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”
To support this, the annual subscription limit for the Junior ISA (JISA) and Child Trust Fund (CTF) will more than double in the 2020/21 tax year. This means that you will be able to increase the amount of tax-free savings for a child from £4,368 to £9,000.
The adult ISA subscription limit will remain at £20,000.
To support learning, the government will introduce legislation on 1 December 2020 to remove VAT on e-publications such as magazines and e-books.
Now that the UK has left the EU, the Chancellor says that the country can reduce the cost of essential sanitary products for women in the UK.
This means that, from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.
Drivers and drinkers
While there were no tax cuts for drivers and drinkers, the Chancellor announced that he was freezing:
- Spirits duty
- Duty on beer
- Duty on cider and wine
- Fuel duty
Non-UK nationals buying UK property
As widely predicted, a 2% Stamp Duty Land Tax surcharge on non-UK residents buying a residential property in England and Northern Ireland will come into force in 2021.
The aim of this measure is to help to control house price inflation and to support UK residents who want to get onto and move up the housing ladder.
The Chancellor says that the money raised from the surcharge will be used to help address rough sleeping, with the government having committed to ending rough sleeping in this parliament.
Business owners and entrepreneurs
Entrepreneurs’ Relief offers a reduced 10% rate of Capital Gains Tax on qualifying disposals.
With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million. The Chancellor says that 80% of small business owners will be unaffected, but larger businesses or those realising significant gains on disposals will pay more tax.
Might the reduction in the lifetime limit on gains eligible for Entrepreneurs’ Relief mean that individuals will be more incentivised to become non-resident prior to sale?
Paying a higher rate of Capital Gains Tax for any gains over £1 million could certainly be a reason that people might choose to move offshore.
With the Base rate falling to 0.1%, it’s reasonable to expect that long-suffering savers will see yet more falls in savings rates.
Moneyfacts reported that, after the Bank of England last reduced the Base rate in 2016, the average savings rate for an easy access bank account fell by 0.14% in the ensuing three months.
Savers will also see no increase in the amount they can contribute to an ISA in the 2020/21 tax year, and so the limit of £20,000 remains.
High earners making pension contributions
While the threshold earnings level for the Tapered Annual Allowance coming into effect has been raised by £90,000, those on the very highest incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.
The minimum level to which the Annual Allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.
However, the Lifetime Allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020/21, rising to £1,073,100.
Potholes are likely to face a difficult year, with the Chancellor announcing a Potholes Fund of £500 million for each of the next five years.
He expects 50 million potholes to be filled in during that time.
Get in touch
If you have any questions about what the 2020 Budget means for you, please get in touch or call (01372) 724 249.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.