Budget 2020: an irrelevance?
For most of the British population, this year's Budget probably appears both irrelevant and overtaken by events. Irrelevant because it contained very few new measures which will directly impact the individual taxpayer, and overtaken by events because it came at a time when the nation was poised on the brink of the Coronavirus outbreak, which has seen dramatic changes to every walk of life in a matter of weeks.
Interest rates, cut on March 11th to 0.25%, stand at the time of writing at 0.1% and may be cut even further before the crisis is out. Initial Coronavirus funding, then a mere £12bn to provide the Chancellor's "temporary, timely and targeted" response, has now grown exponentially with the rising tide of infections and fear of an economic catastrophe. The Chancellor's presentation of a Budget that was set up for "prosperity tomorrow" now looks out of date in the context of a nation preparing for recession.
For taxpayers fearing major change, the Chancellor chose not to re-open the old wounds of Inheritance Tax, not even setting up a future review aiming towards the promised "simplification". Instead, once individuals emerge from lockdown and the cogs of life start to turn again, the key measures which will affect them are:
- Entrepreneurs' Relief: This tax relief, that the Chancellor called "expensive", "ineffective" and "unfair", is not being removed as some had speculated, but there will be a reduction in the lifetime gains limit from £10m to £1m.
Leanne Wordsworth, Senior Manager in our Personal Tax team, explains:
"Entrepreneurs' Relief (now called "Business Asset Disposal Relief") allows for a lower rate of Capital Gains Tax (10%) to be paid when disposing of all or part of a business if certain criteria are met and subject to the lifetime limit of qualifying gains. HM Revenue & Customs state that with the changes announced in the Budget over 80% of those using the relief will be unaffected. I think we can expect to see further amendments to the relief in the future and wonder whether a similar reform of other reliefs such as Investors' Relief will also follow."
- Pensions taxation: Partly to benefit high-earning NHS consultants, but with wider applicability, from 6 April 2020 the threshold income limit for the annual allowance is £200,000 and the adjusted income limit is £240,000.
Gareth Davies, Chartered Financial Planner in our FCA regulated arm Womble Bond Dickinson Wealth Limited, commented:
"This is generally welcome news as it should mean that more people retain a full £40,000 annual allowance to offset against their pension input in the 2020/21 tax year. However, some high earners (broadly those with adjusted income of £300,000 or more) could be worse off in 2020/21 as their tapered annual allowance may be reduced to a minimum of £4,000 compared against the current minimum of £10,000. In any case, the rules are complicated, particularly for those in defined benefit schemes and those who may have already 'flexibly accessed' some of their pension pots, so personalised advice should be sought."
- SDLT: As promised in the Conservative Manifesto, there will be a 2% surcharge on top of ordinary SDLT rates for foreign buyers of residential property in England and Northern Ireland from April 2021.
- Tax evasion: There will be extra funding for HMRC "to clamp down on aggressive tax avoidance, evasion and non-compliance" which the Chancellor estimated would secure £4.4bn in lost tax revenue.
Budgets are not usually occasions to raise a glass in celebration, but at this gloomy time it seems worth mentioning some cheery pieces of good news contained within the Chancellor's speech:
- For drinkers, the planned rise in beer, wine and spirits duty will not take place.
- For Scotland, the Chancellor pledged £1m specifically to promote "our largest food and drink export", Scotch whisky, abroad, and promised to continue to lobby for the 25% US trade tariff on single malts to be removed.
- For innovative industries, there will be £22bn per annum for research and development, including £10m to help whisky distilleries "go green" (you would be forgiven for spotting a theme here…)
- For agriculture, although not in some other industries, red diesel tax relief will be retained.
- For the environment, amongst other things, there was a pledge of £640m for a new "Nature for Climate Fund" to "protect, restore and expand" natural habitats like woodlands and peat bogs, and some significant tree planting and peatland restoration commitments.
- For readers, there will be an end to VAT on books of any kind, including digital publications.
- For the regions, there was a promise to create new treasury offices in Scotland, Wales and Northern Ireland and a new "economic campus" in the North.
Some business owners may well feel the impact of the changes to Entrepreneurs' Relief. That apart, this Budget might not have been the most dramatic of budgets for individuals, but it was a barometer of change to come and is providing some interesting food (and drink) for thought whilst in our current state of enforced isolation. Depending on how the next few months unfold, we may see the Chancellor revisit those aspects of the Budget that have not yet hit the statute book, with the possibility that some will never make it that far. We should know more once some semblance of normality returns.