March 11th, 2020 / Insight posted in Articles

Budget 2020: Private Client Tax

There had been a lot of speculation about potential changes to the taxation of individuals being announced in the Budget but much of this came to nothing. Major overhauls of social care funding and inheritance tax have been kicked down the tracks, but there were some measures worth noting, particularly as far as pensions are concerned.

 

Changes to entrepreneurs’ relief

As has been widely expected, entrepreneurs’ relief has changed with effect from Budget Day. It has not been abolished, but the lifetime limit for gains which could qualify for the relief – which was £10 million – has been reduced to £1 million for disposals on or after 11 March.

Moore Kingston Smith comment

While it is good news that the relief has not been abolished completely, it is much less generous than before. The additional £6 billion of tax expected to be collected over the next three years assumes that the removal of this tax relief will have no impact on the behaviour of entrepreneurs. However, some individuals may look to sell businesses sooner, or to relocate outside of the UK before selling, which could reduce the UK tax take.

Given the anticipated change to the rules, taxpayers may have been advised to take steps to bank their entitlement to entrepreneurs’ relief before Budget Day. The draft legislation published today anticipates this and anti-forestalling rules will mean that certain types of planning might not now be successful, and that the new £1 million limit may apply to some transactions which took place before Budget Day.

 

Pensions tax

Despite much pre-Budget speculation about wholesale pension changes, the measures announced were limited. The main change was driven by an attempt to reduce the number of senior public service workers who are impacted negatively by the current annual allowance limit, and will mean the income levels at which the limit starts to reduce will rise. From 2020/21, the “threshold income” will increase by £90,000 to £200,000, and the annual allowance will only be reduced for individuals with “adjusted income” above £240,000 (previously £150,000). The standard annual allowance remains at £40,000, but while previously this could have been reduced down to £10,000, it can now fall to a minimum of £4,000. The lifetime allowance will increase in line with CPI to £1,073,100 for 2020/21.

Moore Kingston Smith comment

The complexity of calculating allowable pension contributions remains, but these increased thresholds should mean that the majority of medical staff who have been effected by annual allowances charges will see their position greatly improved, as will others in final salary structures.

 

Savings tax

The 0% starting rate for savings income remains at £5,000 for 2020/21, and the Individual Savings Account (ISA) annual subscription limit also remains unchanged at £20,000 for 2020/21. The subscription limits for Junior ISAs and Child Trust Funds will, however, be more than doubled to £9,000 from £4,368 in 2020/21.

Moore Kingston Smith comment

With interest rates at an all-time low, there may be considered little reason to save, but the increased limited for Junior ISAs and Child Trust Funds may at least provide some encouragement to start saving at a young age.

 

Top slicing relief on life insurance policy gains

Gains from redeeming non-qualifying life insurance policies are taxable as income, but this income can potentially be spread over the number of years that the policy has been held, reducing the rate of income tax on the gain from 40% to 20%. This is called top slicing relief. There have been differences of opinion as to how this top slicing relief interacts with the entitlement to the personal allowance, and other reliefs. Changes announced – to apply from today – clarify this point.

Moore Kingston Smith comment

This is a particularly complex area of tax law, and clarification is helpful. There may also be scope for individuals to re-visit their 2018/19 tax returns to identify if an amended return can be submitted to recover overpaid tax following the clarification.

 

Loan charge review

Following Sir Amyas Morse’s review of the Loan Charge, the Budget confirmed that certain recommendations made in the review will be legislated for in the forthcoming Finance Bill.

As already announced, loans made prior to 9 December 2010 will not be caught by the loan charge. Furthermore, loans made between 10 December 2010 and 5 April 2016 and disclosed to HMRC will also not be caught. Where tax has already been paid for these loans, a repayment scheme will be launched so that persons affected can claim back the tax and interest. Where beneficial, taxpayers can also report the additional taxable income over a period of three years to minimise the tax due, as well as arrange time to pay.

The government will provide HMRC with additional funding to target the disguised remuneration schemes that continue to be promoted and have undertaken to stamp out these schemes.

Moore Kingston Smith comment

The responses to the independent review of the Loan Charge will be welcome news to individuals facing life changing tax liabilities. The government is more general commitment to stamp out disguised remuneration tax avoidance schemes is a necessary move and will almost certainly bring in funds to the Treasury.