2020 Budget – reflections
Rishi Sunak delivered his first budget after 4 weeks as Chancellor, and the first of the new Conservative government. The budget was dominated by how the government are responding to the Coronavirus outbreak in the UK plus increasing spending to end austerity. It is predicted that the economy will grow by 1.1% this year and this will be the slowest growth since 2009.
The biggest change is the reform to Entrepreneur’s Relief. Despite calls for the relief to be scrapped altogether, Sunak instead reduced the lifetime limit from £10 million to £1 million. The relief allows business owners to pay capital gains tax at a reduced rate of 10% when selling their business or its qualifying assets. This change affects all disposals completed on or after 11th March 2020.
On a more positive note, the National Insurance tax threshold has increased from £8,632 to £9,500 which should save employees around £100 a year. The Junior ISA thresholds are increasing from £4,368 to £9,000 and the capital gains tax annual exemption has increased to £12,300 for the 2020/21 tax year. The controversial tampon tax has also been abolished and VAT on digital publications including newspapers, books and academic journals will be removed from December 2020.
Another welcomed change was the adjustment to the tapered annual allowance for higher earners. The Chancellor increased the threshold and adjusted income by £90,000, so now individuals with income below £200,000 will have a full £40,000 annual allowance. However, the amount the annual allowance can be tapered to has been reduced from £10,000 to £4,000. These changes will come into effect from 6th April. There was also considerable discussion around the change of the tax relief on pensions, but this may be something to expect in the Autumn.
The government have introduced a Stamp Duty Land Tax surcharge for non-residents when purchasing property in the UK, levied at 2% from April 2021.
The personal allowance of £12,500 has remained the same, alongside the corporation tax rate of 19%, despite the previously announced reduction to 17%. The government also announced further investment into HMRC to tackle anti-avoidance with the hope of this raising £4.5 billion in the next five years.
Aside from the tax changes, the key focus was on spending to support the economy amidst the Coronavirus crisis. This includes a 5 billion emergency response fund to support the NHS and public services. Statutory sick pay will be available from day 1 for employees who self-isolate for up to two weeks and businesses of less than 250 staff being reimbursed for statutory sick payments. Business rates have been abolished for retail, leisure and hospitality sectors with small businesses having access to business interruption loans of up to £1.2 million. Business rates discounts of £5,000 have been provided for pubs as well as the duties on fuel & alcohol being frozen.
As anticipated, there was sizeable spending attributed to infrastructure. More than £600 billion is to be spent on roads, rail, broadband & housing over the next 5 years. The chancellor announced a £650 million package in order to tackle homelessness plus the removal all unsafe combustible cladding from all public & private housing.
Reducing emissions continues to be a key priority. A plastic packaging tax will be introduced from April 2022 and charges on manufacturers who do not use recyclable materials. Red diesel subsidies for off- road vehicles will be stopped in two-years and there will be a £120m emergency relief for areas affected by winter flooding with further investment for flood defences.
Sunak had a tough job of pleasing voters with this budget in light of a worldwide crisis. The huge spending plans should mean we can expect further taxation announcements in the Autumn statement. If you want to understand how the budget affects you, please contact our tax team who will be happy to help.
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