Our statement on the Spring Budget 2020

The Chancellor delivered the Spring 2020 Budget on 11^th March 2020. To clarify for our clients, we have summarised the key financial planning changes below:

Tax relief on pension contributions 

Those earning around or below the level of the personal allowance and saving into a pension may benefit from a top-up on their pension savings equivalent to the basic rate of tax, even if they pay no tax.

Whether they receive this top-up depends on how their pension scheme administers tax relief. Essentially, those paying contributions via the Net Pay method (usually company schemes) don’t receive the top-up, which contrasts with those making the contribution to a private pension that operates the relief at source method.  If making pension contributions via Net Pay, the employee is therefore losing out on basic rate tax relief under these circumstances.  The government has committed to reviewing options for addressing these differences.

Pension lifetime allowance 

The lifetime allowance (LTA) will increase in line with CPI for 2020-21 to £1,073,100.

This £18,100 increase could mean delaying taking some or all benefits until after 6 April 2020 to help reduce or eliminate the LTA charge which could apply if benefits are crystallised in the 2019-20 tax year for those who don’t have a protected LTA.

Inheritance Tax

The Budget didn’t include any mention of changes to inheritance tax, although this is still expected at some point soon. The nil rate band will stay at £325,000 and the residence nil rate band (RNRB) will make its final (larger than inflation) increase to £175,000 from 6 April 2020. Both bands are expected to increase in line with CPI inflation from April 2021. 

CGT Annual Exempt Amount 

The annual exempt amount for capital gains tax is increased annually in line with increases in the Consumer Prices Index, consequently, the annual exempt amount for the year 2020 to 2021 will be increased to £12,300 for individuals and personal representatives. This figure is halved in Trusts, unless the trust’s Settlor set up more than one trust, which would reduce that exemption further.

Entrepreneurs’ Relief – reduction in the lifetime limit

Legislation will be introduced in Finance Bill 2020 reducing the Entrepreneurs’ Relief lifetime limit to a maximum of £1 million. 

Junior ISA and Child Trust Funds 

While the ISA allowance has been frozen at £20,000, the amount families can save into a Junior ISAs (JISAs) and Child Trust Funds (CTFs) will be more than doubled in 2020-21, increasing from £4,368 to £9,000. This increase will help with those looking to increase gifts to minor children in a tax efficient way

Income tax

Most income tax bands, rates and allowances are remaining the same for 2020/21. The personal allowance remains at £12,500 (with reductions applying once adjusted net income exceeds £100,000).