Budget 2020: A reminder from a time before lockdown

/ Individual, Property Tax, UK Tax

On the 11th March 2020, The Chancellor of the Exchequer, new in the post, Rishi Sunak, presented his Budget to Parliament to much acclaim – more so for the performance rather than the content, appreciation of which probably depends on your politics. One suspects this was a proverbial cake walk compared to the challenges he now faces at the Treasury.

No sooner was the Finance Bill 2020 published on 19 March 2020, the next day Boris Johnson was declaring that all cafes, pubs and shops must close, the lock down would begin and Rishi Sunak, now a regular face on TV, was setting out an “economic rescue plan”. We have more on that in our blog on the UK coronavirus response.

Budget 2020 essentially forgotten. Which is unfortunate because there were a few changes in there that might impact our clients and other taxpayers and that are worthy of comment.

Reduction in the Entrepreneurs’ Relief lifetime limit

This one had been telegraphed to us through the usual leaks to press, and there was the potential for total abolition. To remind you, Entrepreneurs’ relief generally applies to qualifying disposals or part disposals of a business, a business asset or shares in a personal company (this generally requires a 5% holding and being an employee or director). Such disposals would attract capital gains tax at 10% rather than 20% on the first £10m, during your lifetime.

In the Finance Bill 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief will be reduced from £10 million to £1 million. The government says this will help ensure that the tax system is fair and sustainable while leaving over 80% of those using the relief unaffected.

There are a series of anti-avoidance and forestalling measures in relation to transactions occurring around the date of the announcement.

Finally, the relief is to be re-named “business asset disposal relief”, so to some extent Entrepreneurs’ Relief is no more.

Pension Contributions: More changes to the annual pension allowance

If you follow the press reporting on pension contributions, this change is all because of an unexpected excess contribution tax charge, hitting doctors who are higher earners in the NHS, and resulting in them not working extra shifts for fear of a tax penalty.

The annual allowance, the maximum amount you can contribute to your pension during a tax year, is £40,000. For those earning in excess of £110,000 this had the potential to be tapered to a minimum of £10,000. If your contribution exceeds your tapered allowance you have a tax charge.

To resolve the issue, the budget changed the threshold to £200,000 with the result that anyone in the £110,000 to £300,000 pay bracket should see the same or improved amount of available contribution.

However, for those earning more than £300,000 the allowance tapers to only £4,000. This puts a real restriction on the ability of high earners to contribute any income to their pension and get tax relief.

No doubt many high earners, who do not adjust their pension contributions from 6 April 2020 will see a tax charge when they come to complete their 2020/21 UK tax returns.

More tinkering, more complexity, and less incentive to save in pensions, I think the clamour for pension simplification will only grow.

Taxation of UK property

A number of changes to the tax on UK properties are coming in at 6 April 2020 and are included in the Finance Bill 2020 or were included in last year’s Finance Act. We summarise the highlights here:

  • From 6 April 2020, UK residents who sell a UK residential property will need to submit a “return” to HMRC to report any gain and pay the estimate of capital gains tax due within 30 days of completion. This will no doubt catch out numerous sellers of property just as the non-resident provisions have done.

  • At the same time, there are changes to the main residence relief, principal private residence (PPR) relief, which generally allows you to exclude gains on your home. It is not so long ago that, provided a property had at some point been a main home, then for the last three years of ownership it was deemed to be occupied as your main home. That was reduced to 18 months and from 6 April 2020 will only be a 9 month allowance. Lettings relief has also been restricted

  • There will be a new Stamp Duty Land Tax (SDLT) surcharge on non-UK residents buying UK residential property of 2%. This applies in addition to the second home surcharge of 3% and takes the top rate of SDLT to an eye watering 17% for these buyers.

If you have questions or need any support regarding tax planning and advice, our friendly team at Ingleton Partners will be able to support your requirements. Please contact us on +44 (0) 207 183 2251 or email info@ingletonpartners.com.

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