‘Budget billions to beat the virus’ was one headline and, when it comes to personal financial planning, it was a positive budget for most.
Junior ISA – increase in allowance
The Junior ISA allowance, currently £4,368, will more than double to £9,000 from 6th April 2020.
More scope to save tax-efficiently for children – good news for parents and grandparents.
Entrepreneur’s Relief limit cut
Changes to ER were much discussed in the run up to the Budget and, in the end, while ER remains, a significant change was made. ER is a lower rate of capital gains tax payable when an individual sells a qualifying share in a business. The rate is 10% rather than the potential standard CGT rate of 20%, subject to a total lifetime gains cap. It is the cap that was reduced from £10m to £1m.
This was not good news for personal financial planning for those with larger gains (or accumulated realised gains), impacting on the tax paid by many business owners on disposing of shares, doubling the tax payable on qualifying lifetime gains over £1m, and effective from the day of the Budget. However, it has been stated that over 80% of those using the relief will be unaffected.
Investment bonds – clarity on tax treatment
This is unlikely to have widespread impact, but following the Marina Silver v HMRC case in which the tax payer won, it is to be confirmed in legislation that the calculation to work out if the individual retains their Personal Allowance or not is to be on a more favourable basis, potentially reducing the tax charge - smaller gains, less tax, good news.
Pensions Tapered Annual Allowance – increase in threshold
This was generally good news (bad news for some, but in the greater scheme of things it is likely to have limited impact), and targeted at NHS doctors, although it applies to all.
While the workings and definitions are complex, in very general terms those with total income (termed ‘adjusted income’, which covers all sorts of income including pension contributions made by an employer) of over £150,000 suffer a reducing (from £40,000) maximum pension allowance, subject to a minimum of £10,000 pension allowance.
From 6th April 2020 the threshold will increase to £240,000, but the minimum pension contribution allowance reduces to £4,000.
So, there are some who are unaffected, a swathe who are potentially advantaged, and then some who are potentially worse off, depending on their income position:
Less than £150,000
None – no action required
£150,000 to £300,000
Better – consider increasing contributions
More than £300,000
Worse – consider decreasing contributions
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