Budget 2020: Individuals overview
There were few announcements affecting individuals, and a lack of any announcements on Inheritance tax.
In the Budget on 11 March 2020 there were few announcements affecting individuals, and a lack of any announcements on inheritance tax in spite of all the consultations and lobbying. The announcements that were made will have important implications for those affected. The key changes are:
- A reduction in the Entrepreneurs’ Relief lifetime gains limit from £10million to £1million for transactions on or after 11th March 2020, with anti-forestalling provisions that will apply the same limit to certain transactions entered into before that date;
- Changes to tax on pension contributions; and
- The Government will proceed with a SDLT surcharge of 2% for non-UK residents acquiring residential property, with effect from April 2021
Announcements in relation to public spending will inevitably lead to speculation of further personal tax changes in the forthcoming autumn budget.
Rates and allowances
As previously announced, the primary Class 1 (employee) National Insurance (NIC) threshold will increase from £8,632 to £9,500 for 2020/21 with confirmation of the Government’s continuing ambition to work towards once again aligning income tax and NIC thresholds with the ultimate aim that the first £12,500 of earnings are not subject to tax or employee NIC.
There were no other significant changes to personal tax rates and thresholds.
Shareholder tax reliefs and incentives
Entrepreneurs’ Relief (ER), which allows a 10% capital gains tax (CGT) rate on qualifying gains, is to be limited by reducing the upper limit of qualifying gains from £10million to £1million (the level set when the relief was first introduced in 2008), for disposals on or after 11 March 2020. This limit will also be applied to certain transactions undertaken before 11 March 2020. This will impact business owners, shareholders, and certain employee shareholders, holding qualifying business assets.For further information see Entrepreneurs’ relief restricted to lifetime gains of £1million.
There has been no announcement that the reduced £1million lifetime limit will also apply to Investors’ Relief (IR). IR is an alternative to ER for investors in qualifying shares of an unlisted trading company or the holding company of a trading group. It only applies to investors who are not employees involved in the running of the business. A CGT rate of 10% is charged on qualifying gains within a lifetime allowance of £10million.
Tapering of pensions annual allowance
Changes will be made to the tapering of the pension annual allowance for ‘high earners’ from 6 April 2020. The Government introduced tapering of the pensions annual allowance with effect from 6 April 2016. Where this applied the £40,000 annual allowance is reduced by £1 for every £2 of income over the threshold, to a minimum annual allowance of £10,000.
From 6 April 2020 the threshold income limit (the point at which an individual is assessed for the taper) will be £200,000, and the adjusted income limit (the point at which the annual allowance begins to reduce) will be £240,000. However, the minimum tapered allowance will be reduced to £4,000 from £10,000. Therefore fewer individuals will be affected by tapering of the allowance, but the potential tax cost for those still affected could be greater. Those making regular contributions may need to adjust these from April to avoid a tax charge. For further information see Tapered Annual Allowance for pensions – increases to thresholds
The lifetime allowance for pensions will be indexed to £1,073,100 from 6 April 2020.
The Government will proceed with introducing a stamp duty land tax (SDLT) surcharge on foreign buyers of residential property in England and Northern Ireland. The measure was previously the subject of a consultation initiated in February last year. The current proposal is that non-resident individuals, corporates and we assume other entities will, from 1 April 2021, pay an SDLT surcharge of 2% on top of the ordinary SDLT rates that would otherwise apply.
As a reminder, new rules already enacted in legislation come into effect from 6 April 2020:
- Restrictions to Private Residence Relief will apply so that the final period exemption is reduced from 18 to nine months, and lettings relief will only apply if the owner is in shared occupancy with the tenant;
- Requiring 30 day reporting and payment of chargeable capital gains tax on disposals of UK residential property. These rules apply to both UK residents and non-UK residents and for UK residents represent a significant reduction in the time allowed for reporting and payment of chargeable gains tax; and
- To move non-resident corporate landlords from income tax to corporation tax.
In addition to the above several other areas of potential forthcoming change were confirmed in the Budget including:
- The Government will review whether the qualifying conditions for Enterprise Management Incentives (EMI) should be relaxed so that more companies are able to grant EMI options to their employees;
- Previously announced changes extending the stamp duty market value rules to transfers of unlisted shares to connected companies, will come into effect from the date of Royal Assent to Finance Act 2020;
- The reform of the Enterprise Investment Scheme rules for approved funds with the main change being that funds will need to focus on knowledge intensive companies;
- From 6 April 2020, medium and large businesses must assess the ‘IR35’ status of engagements with workers who operate through intermediaries (such as personal service companies); and
- The ‘2019 loan charge’ will now only apply to loans from third party structures to employees (‘Disguised Remuneration’), such as Employee Benefits Trusts (EBTs), made on or after 9 December 2010 which remained outstanding on 5 April 2019.
More details on the key measures
Chancellor reduces the lifetime capital gains limit for Entrepreneurs’ Relief from £10 million to £1 million from 11 March 2020.
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