Budget 2020: What It Means for Your Money
Along with Brexit, the new threat from Coronavirus meant there was a lot to deal with. Beyond dealing with these two significant challenges, the key themes focussed on the governments ‘levelling-up’ agenda, with the Chancellor announcing a number of significant spending commitments, largely funded by additional borrowing. There were also important announcements on benefits, pensions and taxation.
Here’s a summary of the key points and how the measures announced could affect your personal finances:
Predictions that the many tax advantages of pensions would be trimmed back did not materialise.
Pensions tax-relief for some higher earners will be more generous from April. This is predominately aimed at easing workforce pressures on the NHS. The standard tax-free annual allowance on pension contributions is £40,000, however this starts to taper down to £10,000 for those earning more than £110,000. It was announced that this threshold will rise to £200,000. Only those with ‘adjusted income’ (broadly income plus employer pension contributions) of £240,000 or more will see the amount they can pay in reduced. There is a ‘sting in the tail’ for those with ‘adjusted income’ over £300,000. Those earning this amount will see their maximum pension contributions reduced below the current minimum allowance of £10,000, down to a minimum of £4,000.
For most people, the pension rules remain unchanged. This means the generous tax benefits from investing in a pension continue.
There was a surprise announcement on Junior ISAs (JISAs) with the annual contribution limit more than doubling from £4,368 to £9,000 each tax year. The standard ISA allowance remains at £20,000.
If you’re looking to invest or save for your children, the increased Junior ISA allowance will allow you to shield more from UK income tax and capital gains tax.
A few hours before the Budget was delivered, The Bank of England voted to cut the bank base rate from 0.75% to 0.25%, reducing borrowing costs to the lowest level in history.
This interest rate reduction will immediately reduce mortgage repayments for homeowners on tracker and variable-rate mortgages. However, fixed rate mortgage repayments will remain unaffected. Savers suffered again as any interest they are currently receiving is likely to be cut to an even lower level.
A £30bn ‘war chest’ was announced to help fight the Coronavirus. This included a £1bn package to support the financial security of workers, making it easier for the self-employed to claim benefits, plus a new £500m ‘Hardship Fund’ to be distributed by local authorities. Statutory sick pay will be made available from the first day of self-isolation, even if no symptoms are present. Small businesses (with fewer than 250 employees) will be able to have the cost of providing statutory sick pay refunded by the government in full for up to 14 days. A new ‘Business Interruption Loan Scheme’ was also announced to help small and medium-sized companies. £5bn was also pledged to support the NHS and other public services in England.
Significant changes to Entrepreneurs relief were announced. This is available to those disposing of part or all of a trading business. Under the current rules, those claiming the relief would pay only 10% capital gains tax (rather than the top rate of 20%) on up to £10m of lifetime gains. This has now been reduced to £1m.
There were no changes to Income Tax. The tax free ‘personal allowance’ has been frozen at £12,500 and the 20% and 40% tax bands remain unchanged. With wages now rising at their fasted rate for some time, this will drag more people into higher tax bands and should mean a higher tax-take for the Treasury. However, the National Insurance threshold will rise from £8,632 to £9,500, giving many people a tax cut.
As with many Budgets, there was additional funding to help HMRC clampdown on aggressive tax avoidance. It is hoped this measure will bring in an additional £4.4bn.
In an unexpected move, the Chancellor abolished what he called the ‘Reading Tax’ with an announcement to remove VAT on ebooks and digital publications from December.
As outlined in the Conservative manifesto, there was a new stamp duty surcharge of 2% for all non-UK residents who purchase a property. For foreign (and ex-pat) property investors, this additional tax is on top of the 3% additional levy on second homes and buy-to-let properties and will come into effect in April next year.
It was announced that the so-called ‘Tampon Tax’ (with VAT charges on female sanitary products) would be abolished.
In a blow to environmental campaigners, fuel Duty will aging be frozen and there will be considerable investment in new road infrastructure. Total infrastructure spending is expected to be around £600bn by 2025.
Duties on spirits, beer, cider and wine will be frozen but tobacco duty will rise by 2% above inflation.
Business rate discounts for pubs will rise from £1,000 to £5,000.
There was additional funding for science, technology and R&D as well as £5bn promised for high speed broadband roll-out and £900m for research into nuclear fusion, space and electric vehicles.
If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.