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.
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:
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%.
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.
Your year-end checklist should include:
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.
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).
You should consider using the current three main yearly IHT exemptions:
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.
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.
The increases that will apply to state pensions from April 2020 were announced on 30 January:
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 fromRead more from the Roxboro Library