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Roxboro February 2020 Newsletter

At last the autumn Budget…

2019 was an unusual year, not least for the entire year passing without a Budget. This year has started on an equally unusual footing with Sajid Javid resigning to be replaced by Rishi Sunak. As I write the Budget is scheduled for 11 March 2020.

What we believe is going to be in the 2020 Budget

We have a good insight into some of the Budget’s contents because draft clauses for the Finance Bill that will follow it were published in July 2019. These include legislation, due to operate from 6 April 2020, to:

  • Extend to the private sector the off-payroll rules (IR35) which currently apply to the public sector;
  • Revise company car tax scales (generally increasing tax bills); and
  • Tighten the rules on Capital Gains Tax for main residences, e.g. reforming lettings relief so that it applies only when the homeowner shares their property with the tenant.

It has already been confirmed that the starting point for paying National Insurance contributions (NICs) will rise from the current £8,632 a year to £9,500. This is worth up to £104 a year for employees and £78 for the self-employed. Employers will not however benefit as the starting point for employers is simply being increased in line with inflation.

One other measure we can expect is a Finance Bill clause to reverse the proposed cut in Corporation Tax from 19% to 17%.

What we don’t know is going to be in the 2020 Budget

If the Chancellor wants to make some unpopular changes, March will be the time he does it, giving the electorate the longest possible time to forget about his actions. A few possibilities include:

Income Tax. The Conservative manifesto promised not to increase income tax rates, but it still leaves scope for manipulating tax bands, allowances and reliefs.

This is already evident to some degree. In the 2018 Budget the personal allowance and higher rate threshold were raised by more than expected, but then legislated for both to remain unchanged in 2020/21. We do not expect to see any significant increase in the higher rate threshold.

Pension tax reliefs. We worry that pension tax reliefs are seen as ‘low hanging fruit’, i.e. a seemingly easy way to increase tax revenue. There is likely to be attention on pensions tax in this Budget in any instance because of problems with senior NHS staff and annual allowance tax charges.

With its majority of 80, March could be the time when the Government does something radical on pensions, accepting that to tidy up the current mess means creating winners and losers.

We suggest that anyone who is contemplating a pension contribution makes it prior to the Budget.

Capital Gains Tax. An increase could generate a substantial amount of tax while affecting very few people – fewer than 300,000 people paid the tax in 2017/18 thanks to the generous annual exemption.

Also, on the CGT front, some announcement on Entrepreneurs’ Relief is quite likely.

Inheritance tax. Last year the Office of Tax Simplification (OTS) issued two papers on measures to simplify inheritance tax (IHT). Among the changes that might emerge are an increase in some annual exemptions, alongside the abolition of others and the introduction of new rules governing the interaction of IHT and CGT reliefs for business assets.

Action

Your year-end checklist should include:

  • Pensions

More than in most years, 2020 is the year to ensure you make your pension contributions before the Chancellor delivers his speech.

One important point to check is whether you have any unused annual allowance from 2016/17, when the maximum annual allowance (before tapering) was £40,000. You have until the end of 2019/20 to use up this past allowance, or it is lost forever.

  • Capital Gains Tax

As a general rule, it makes sense to realise gains up to the CGT annual exempt amount each tax year. The exemption, covering £12,000 of gains in 2019/20, cannot be carried forward and needs to be used by 3 April (the tax year ends on Sunday 5 April).

  • Inheritance tax

You should consider using the current three main yearly IHT exemptions:

  1. The Annual Exemption. Each tax year you can give away £3,000 free of IHT. If you do not use all of the exemption in one year, you can carry forward the unused element, but only to the following tax year, when it can only be used after that year’s exemption has been exhausted.
  2. The Small Gifts Exemption. You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 exemption.
  3. The Normal Expenditure Exemption. The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions and the one most likely to be reformed. Currently, any gift is exempt from IHT provided that:
    1. you make it regularly;
    2. it is made out of income (including ISA income); and
    3. it does not reduce your standard of living.
  • ISAs

The overall maximum that can be invested in all ISAs in 2019/20 is generally £20,000 (£4,368 for Junior ISAs). There are no carry forward provisions, so like the CGT annual exemption it is a case of use it or lose it.

Action

The sooner you start planning ahead of that 11 March Budget date, the better. That is particularly important if you want to maximise your pension contributions, as obtaining the relevant data can take time. Contact us today to arrange for your tax-year-end review.

State pension increases

The increases that will apply to state pensions from April 2020 were announced on 30 January:

  • The new state pension (single tier) and the basic state pension will rise by 3.9%, in line with average earnings growth to July 2019; and
  • Other state pensions will increase by 1.7%, the rate of price inflation to September 2019.

 

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as at February 2020. No action must be taken or refrained from

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