The Budget is currently set for March 11. Not only is it the first budget for newly appointed Rishi Sunak – following the shock departure of Sajid Javid – it’s also the first since last December’s general election. Will the Conservative majority win give the Chancellor carte blanche to make radical reforms?
With Brexit ‘done’ there’s a feeling that the party will want to concentrate on domestic policy. So what changes can we expect and what will they mean for you?
Possible announcements and what they mean for you
1. Changes to the Tapered Annual Allowance
Following the Pensions Bill announced in the Queen’s Speech last year, it’s expected that the Chancellor will make changes to the Tapered Annual Allowance.
The problematic legislation has proved particularly controversial in the NHS where doctors hit by large tax bills have been forced to work fewer hours, or opt-out of the NHS pension scheme altogether, rather than pay high tax charges.
The Tapered Annual Allowance reduces your standard Annual Allowance by £1 for every £2 of income you receive if your ‘threshold income’ is over £110,000, up to a maximum reduction of £30,000 for those earning ‘adjusted income’ of over £210,000.
If you earn over the current ‘threshold income’ of £110,000, an increase in that threshold to £150,000 could significantly reduce your tax bill.
It is deemed unlikely that the allowance will be scrapped altogether, a move the British Medical Association (BMA) has been calling for. But certain changes might be applied only to NHS workers, possibly by removing the taper from Defined Benefit schemes, such as the NHS scheme.
Much still depends on the outcome of ongoing talks between the government and the BMA, but a Budget announcement is expected on the outcome of those talks.
2. National Insurance thresholds set to rise
The government has confirmed that National Insurance thresholds will rise in April. The current threshold of £8,628 will increase to £9,500 and could see as many as 31 million workers better off.
The Prime Minister has confirmed plans to increase the threshold further, aligning it with the Personal Allowance within four years.
From April 2020, the average worker is set to pay around £104 less each year. If you’re self-employed (and therefore paying a lower rate) you’ll see £78 cut from your bill.
3. Inheritance tax
Inheritance Tax rules have come under attack for being too complicated. The Office of Tax Simplification last year, and more recently an all-party group of MPs, have suggested major reforms are needed.
One change we might see is to the period of exemption for lifetime gifts. Currently, if you make a gift in your lifetime and survive for seven years after making the gift, it is not counted as part of your estate for IHT calculation purposes.
It has been recommended that the period of survival be reduced from seven to five years – if you make a gift in your lifetime you would now only need to survive five years before the gift became IHT exempt.
The All-Party Parliamentary Group (APPG) have also made calls for the overall IHT to be reduced from 40% to 10%, according to Moneywise, saying the APPG ‘wants to cut IHT to 10% for estates above £325,000, while those above £2 million would pay 20%.’
4. Entrepreneurs’ Relief
Entrepreneurs’ Relief (ER) reduces the Capital Gains Tax (CGT) you pay when you sell all or part of your business. It applies to Sole Traders or Partnerships and only to qualifying assets.
As FTAdviser explains, ‘ER applies a reduced CGT rate of 10% to the first £10m of qualifying gains. As the headline CGT rate is currently 20%, ER provides a tax saving of up to £1m for qualifying taxpayers.’
The Chancellor is not expected to abolish ER altogether but any changes that are announced are likely to apply from the start of the 2020/21 tax year.
If you’re in the process of selling your business, or about to do so, you might consider exchanging contracts before the Budget on 11 March, or at the latest by 5 April 2020. This will mean you’ll be taxed under the current Entrepreneurs’ Relief regime, and avoid the ill-effects of any Budget announcements.
5. Social care crisis
The Queen’s Speech included a promise to invest £1bn into funding social care. The money is intended to “ensure that the social care system provides everyone with the dignity and security they deserve and that no one who needs care has to sell their home to pay for it”.
But additional funds could partly come from a rise in Council Tax.
The Telegraph reports ‘councils will be able to increase council tax by 2% to raise extra cash’ so you might see a Council Tax rise announced in March. If you’d like to discuss how the Budget could affect you, get in touch. Please email firstname.lastname@example.org or call 0115 933 8433.