UK Budget 2020 - Personal Tax

Amid all the public spending commitments announced by the Chancellor today, you could be forgiven for missing any personal tax announcements.

This is perhaps not surprising given the Government’s pledge not to increase rates of income tax, National Insurance and VAT in this Parliamentary term. However, there was much speculation in the press in the lead up to today’s Budget including: 

  • the possible abolition of Entrepreneurs’ Relief, 
  • a major overhaul of the inheritance tax code, 
  • restriction of higher rate tax relief on pension contributions.   

The Chancellor did confirm restrictions in Entrepreneurs’ Relief from a lifetime limit of £10 million to £1 million with effect from today and this does fall within the Conservative Party’s 2019 manifesto pledge to review and reform the relief. 

Whilst not being a big revenue raiser for Government coffers, Inheritance Tax legislation has been thought by many to be overdue for reform. Reports by the Office of Tax Simplification in July 2019 and the snappily titled All Parliamentary Group for Inheritance and Intergenerational Fairness, in January 2020, between them proposed some very significant changes.

These included the abolition of many reliefs including Business Property Relief, Agricultural Property Relief and potentially Exempt Transfers in exchange for a simpler set of rules and a potentially lower headline rate of IHT. No changes were announced and perhaps may be considered in future Budgets. Change is likely and this gives time to plan ahead. 

Pensions tax relief and particularly higher rate relief for high earners has continued to be a matter for debate given its cost to the Exchequer and perceived unfairness in benefiting those who could afford to invest more into pensions.  The Government has left the pensions tax relief framework largely untouched but for important changes in tapering of the annual allowance which limited tax relief on individuals with incomes above £150,000.

With effect from April 2020, the tapering will apply to those with incomes above £240,000 but with a slight sting in the tail by limiting tax relief on pension contributions to £4,000 per year for those with incomes above £312,000. 

The Government pre-announced that there would be no changes in next year’s personal allowance (£12,500) or basic and higher rate bands. This could be seen as tax by stealth as people’s incomes increase. The Scottish Government will no doubt be relieved that there were no changes in UK allowances and rate bands given that they needed to publish their Budget prior to Westminster.

There continues to be a difference in tax rates between Scotland and the rest of the UK with those on lower incomes benefiting marginally north of the border.  However, the Westminster and Holyrood Budget announcements have led to no further widening in this regard. 

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