The Budget, understandably, focused on Coronavirus and the implications on both a health and finance basis, meaning other changes that may impact individual wealth management were not front and centre.
There were some changes to be aware of, but Gavin Jones, Chartered Financial Planner at financial experts Old Mill, says the key points of the budget were the changes that we didn’t see.
“With a lot of talk before the Budget of a big reduction in pension tax relief for higher earners and following the two reports about Inheritance Tax (IHT) from the Office for Tax Simplification (OTS) in 2019, we still expect reform in these areas,” he said.
“With a big increase in borrowing and the autumn Budget looming at some point, the focus will come back on tax receipts and these could be areas targeted. However, despite this, there were some changes to be aware of in terms of income, earnings, pensions and tax.”
There’s been no change to the pension tax relief, but the lifetime allowance – the maximum amount of tax-relieved pension savings that can be accrued in total – has been increased to £1,073,100 for the 2020-21 tax year.
“However, the most significant change in terms of pensions is the Chancellor’s decision to increase the annual allowance taper threshold,” said Jones.
The two annual allowance thresholds will be increased by £90,000 which means that from 2020-21 the ‘threshold income’ will be £200,000 (meaning anyone with income below this level will not be affected) and the annual allowance will only begin to taper down for individuals with an ‘adjusted income’ above £240,000.
“These changes to the pension taper are a solution to the problem highlighted in the news relating directly to NHS staff – namely that doctors were reluctant to take on any additional work due to the risk of unexpected tax bills,” says Jones. “This was already having a negative impact on frontline services and now, with the potential impact of the coronavirus on the NHS resources, it was widely predicted that there would be a change.
“It’s of course a welcome move, but it remains a complex area while it will remove the impact on most people, more fundamental changes are needed for it to offer a real solution. My advice for now is for anyone who has opted out of a pension scheme or taken reduced pension contributions in exchange for increased salary, should revisit these calculations in light of this change.”
The threshold for National Insurance Contributions (NICs) has been raised from £8,632 to £9,500 from April, edging it slightly closer to the Income Tax personal allowance which, says Jones, will make the average worker around £100 better off per year.
“While the personal allowance has not changed (it remains at £12,500) you need to keep in mind that the level is reduced by £1 for each £2 over £100,000 until it reaches zero. Therefore, personal pension contributions and charitable gift aid donations remain an effective way of retaining the entitlement to the personal allowance, especially where income falls between £100,000 and £125,000.”
The Capital Gains Tax (CGT) annual exempt amount will rise from £12,000 to £12,300 in 2020-21 but rates of CGT remained unchanged and while there had been speculation that the government would make changes to IHT, nothing was announced.
“Couples should be using both personal allowances, starting/basic rate tax bands and the dividend and personal savings allowances to full, and claiming Marriage Allowance where applicable,” said Jones.
“It’s also important to remember that the annual CGT exemption is given on a ‘use it or lose it’ basis but is per individual, so with jointly owned assets there will be two annual exempt amounts available to use against the total gain.”
For a full and detailed look at the Budget and how it may affect you in terms of Income Tax and earnings, Capital Gains Tax and Stamp Duty, investments and pensions, trust taxation and Inheritance Tax, visit https://om.uk/insight/wealth-management-budget-2020-what-you-need-to-know/