Relatively few changes to personal taxes were announced, and those that were target specific individuals and situations.
The most significant change was to Entrepreneurs’ Relief (ER), which allows those who qualify to pay capital gains tax (CGT) at 10 per cent rather than 20 per cent, typically when selling their business. Prior to Budget day, gains up to £10 million could qualify for the lower rate but that was significantly reduced to £1m for gains arising on or after 11 March 2020.
While a change to ER was widely expected leading up to the budget, what came as a surprise was the wide-ranging anti-avoidance rules. These rules could catch any transaction prior to Budget day and impose the higher rate of CGT if tax planning had been undertaken to attempt to ‘bank’ the lower rate. It is worth noting that Investors’ Relief still provides for a 10 per cent rate of tax on gains up to £10 million. See our separate more detailed article for these changes.
Elsewhere, there was a change to the annual allowance for pension contributions. Most individuals can pay up to £40,000 into their pension and obtain tax relief at their highest rate. Up to 5 April 2020, in accordance with current rules, those with income over £150,000 will have their £40,000 limit reduced by £1 for every £2 of income, to a minimum of £10,000.
From 6 April, the lower threshold for the start of tapering will be increased to £240,000 – allowing an extra £90,000 of income before any restriction on the relief for annual pension payments start. But the annual allowance will now taper down to £4,000, meaning those with income over £300,000 will find that their pension payments, on which full tax relief will be given, is now severely restricted. We have also covered this in a separate article .
There were changes to the tax regime for those encashing insurance bonds, which are subject to income tax since HMRC lost a tribunal case on the matter. The rules have been changed to confirm that the taxpayer’s method of calculating the tax in that case is now the correct version. Anyone who has encashed a life insurance bond in the past four years should consult with their tax adviser to see whether they can retrospectively benefit from this change.
There were targeted changes for non-resident purchasers of property in England and Northern Ireland, who will suffer an additional 2 per cent Stamp Duty Land Tax – but only from 1 April 2021.
Overall, the changes will broadly affect taxpayers in very specific situations and represent a balance between a reasonable loosening of the rules in certain situations (pensions and insurance bonds) and a tightening of perceived generous reliefs (ER and pensions relief for those with the highest income).
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