It may seem like a lifetime ago, but this government’s first Budget was only just a month ago. Since then events have overtaken the Chancellor’s speech, but there were some important new measures announced in Rishi Sunak’s first Budget.
From changes in pension allowances to changes to National Insurance contributions, here are seven important Budget announcements you should be aware of.
1. Changes to pension allowances
In recent months, issues concerning NHS pensions have never been far from the news headlines. Problems associated with the Tapered Annual Allowance had left many NHS staff facing large tax bills, with many refusing additional shifts or overtime because of concerns over tax.
Having promised an urgent review into the taper, the Chancellor announced the results of this in this year’s Budget. Essentially, the thresholds at which the Tapered Annual Allowance come into effect will rise by £90,000.
Now, if your threshold income is above £200,000, then you need to check if your ‘adjusted income’ (all income that you are taxed on including dividends, savings interest and rental income, before tax plus the value of your own and any employer pension contributions) is more than £240,000.
If it is above £240,000, the annual allowance will reduce by £1 for every £2 that your ‘adjusted income’ exceeds £240,000.
According to the Chancellor, this will ensure 98% of NHS consultants and 96% of GPs are not affected by the taper.
Note that while the threshold earnings level for the Tapered Annual Allowance coming into effect has been raised by £90,000, individuals on higher incomes will see a significant reduction in the amount they can contribute to a pension and retain tax relief.
Previously, those affected the most by the Tapered Annual Allowance saw their Annual Allowance reduce to £10,000 (meaning they could contribute up to £10,000 into their pension each tax year and retain tax relief).
Now, the minimum level to which the Annual Allowance can taper down will be £4,000. This reduction will affect individuals with total income (including pension accrual) over £300,000.
The government also announced that the Lifetime Allowance (the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime) will rise to £1,073,100 in the 2020/21 tax year.
2. Increase in National Insurance thresholds
One of the Conservative manifesto commitments during December’s General Election campaign was to increase the threshold for paying National Insurance contributions.
The Chancellor announced that the current threshold would rise, from £8,632 to £9,500.
This equates to a tax cut for around 31 million people, saving a typical employee around £100 a year.
3. Increase in Junior ISA limit
In the Budget statement, the government said: “By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training, or work.”
To support this, the annual limit for contributions to a Junior ISA (JISA) or Child Trust Fund (CTF) will more than double in the 2020/21 tax year, from £4,368 to £9,000.
The adult ISA subscription limit will remain at £20,000.
4. Reduction in lifetime value of Entrepreneurs’ Relief
Entrepreneurs’ Relief is a way of reducing the Capital Gains Tax (CGT) payable when you sell all or part of your business. It allows you to apply a reduced CGT rate of 10% on the profits you make when you sell qualifying assets (such as your business).
With immediate effect, the lifetime limit on gains that are eligible for Entrepreneurs’ Relief will reduce from £10 million to £1 million. The Chancellor says that 80% of small business owners will be unaffected, but larger businesses or those realising significant gains on disposals will pay more tax.
5. ‘Tampon tax’ abolished
Having left the European Union on 31 January, the Chancellor says that the UK can now reduce the cost of essential sanitary products for women in the UK.
This means that, from 1 January 2021, the ‘tampon tax’ will be abolished through the application of a zero rate of VAT on women’s sanitary products.
6. Stamp Duty rise for non-UK nationals
The government announced that non-UK residents buying a residential property in England and Northern Ireland will pay an additional 2% Stamp Duty Land Tax surcharge from 2021.
The Chancellor says that the money raised from the surcharge will be used to help address rough sleeping, with the government having committed to ending rough sleeping in this parliament.
7. Base Rate cut to record low
On the morning of the Budget, the Bank of England had already announced measures to support the economy, including an emergency reduction in the Base rate from 0.75% to 0.25%. The Bank has subsequently cut the Base rate again to a record low of 0.1%.
If you have a tracker mortgage – where your interest rate is directly linked to the Base rate – you should immediately see a reduction in your repayments.
If your mortgage is linked to your lender’s Standard Variable Rate (SVR) then you may also see a benefit. Many of the leading lenders have announced that they will reduce the SVR as a result of these two recent base rate cuts.
The news is less positive for savers. With the base rate now at 0.1%, there have already been reductions in the already low savings rates being offered by banks and building societies.
Savers will also see no increase in the amount they can contribute to an ISA in the 2020/21 tax year, and so the limit of £20,000 remains.
Get in touch
If you have any questions about how the measures announced in the Budget affect you, please get in touch. Email at firstname.lastname@example.org or call 0800 0787 182.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.