There were three main changes announced in the Budget 2020 affecting personal finances, with the headline item being the change to the annual allowance for higher earners. 

Pension tax changes to tapered annual allowance 

The tapered annual allowance has been front of mind for high earners (those earning over £150,000) of late, especially those in NHS pension schemes, with many senior doctors capping their working hours to stay within the threshold for tax purposes. The Chancellor announced a significant increase to the tapered annual allowance for threshold and adjusted income by £90,000 each. This increase will come into effect for the tax year 2020-21 for benefits accrued on or after 6 April 2020, meaning that anyone with income under £200,000 will not be subject to taper. The benefit of this change will be warmly received, particularly by those in final salary schemes many of whom were having to opt out of their pension arrangement to avoid unwelcome tax charges.  

Conversely, for those earning over £300,000 per annum there will be a considerable reduction in what they will now be able to contribute toward retirement. 

Junior ISA savings limit to hit £9,000 

The Chancellor announced a welcome increase to the contributions families and children can make to Junior ISAs and Child Trust Funds to £9,000 per annum from 2020/21. 

This more than doubles the current limit of £4,368 and offers a great opportunity to build a tax-advantaged portfolio for the future as well as encouraging a long-term savings habit. 

Changes to top slicing relief 

Finally, the Chancellor announced an immediate change to the reliefs available on gains made when a life insurance policy is surrendered. Previously, the total gain on the policy was added to your income in the year you decided to end your policy and cash it in. It was then divided over the number of years held before calculating the tax due and the total gain, on occasion, meant that individuals lost all or part of their personal allowances. 

The changes introduced today, mean that the personal allowance can be reinstated where it has been reduced as a result of the gain. It’s likely this will impact only a small number of individuals who would have ordinarily been caught out by this. The good news is, this takes effect from today – 11 March.  

If you have any questions regarding the areas covered in this blog, please do not hesitate to get in touch.