Rishi Sunal Delivers His First Budget - A Summary of the Key Points

Adrian Howard
May 29, 2020

Ahead of the Budget, there was considerable discussion about the possibility of change to pensions tax relief and Inheritance Tax, but nothing was forthcoming.

Rishi Sunak delivers his first Budget as UK chancellor against the most uncertain economic backdrop since the financial crisis.

The chancellor’s first Budget was announced against a challenging economic background, made worse by the impact of the coronavirus. Unsurprisingly, the emphasis was on the government’s spending plans, as it sought to fulfil its election promises, to substantially increase infrastructure expenditure and to ameliorate the negative impact of the coronavirus. These announcements were supported by a package of measures from the Bank of England, including a cut in the base rate by half a percent to 0.25%.

But what changes could have a direct or indirect impact on your tax and financial planning strategy?

Well, they were relatively few.

An increase in the National Insurance primary threshold and lower profits limit to £9,500 (from £8,632) from 6th April 2020 will be welcomed by employees and the self-employed respectively. The Income Tax personal allowance remains at £12,500.

There was significant pre-Budget speculation around Entrepreneurs’ Relief, which grants a 10% tax rate on capital gains realised from the disposal of a qualifying interest in a qualifying business, up to a lifetime gains limit of £10 million. While the relief will remain, the lifetime limit will reduce to £1 million. The chancellor indicated that this should not materially reduce the incentive to start and build businesses.

Turning to investments, parents keen to make tax-efficient provision for their children will welcome the increase in the annual limit for Junior ISA subscriptions to £9,000 (from £4,368) for the 2020/21 tax year. For investors, the main change of note was the increase in the annual Capital Gains Tax exemption to £12,300 (up from £12,000) for the next tax year. The (tax-free) dividend allowance remains at £2,000. Taken together, these reliefs increase the tax attractions of an investment in unit trusts, subject to appropriate limits.  

It was confirmed that the previously announced reduction in Corporation Tax to 17% would not be going ahead. The rate remains at 19%, which is still relatively low.

The tapered annual allowance for pensions has been a hot topic for high earners, especially members of the NHS Pension Scheme. We had expected the chancellor to increase the level at which the tapered allowance first applies, but not to the extent that he did. He increased the threshold and adjusted income levels by £90,000: meaning that no one with income under £200,000 will now be subject to the taper and will have a £40,000 annual allowance. However, it isn’t all good news: the minimum that the annual allowance can taper down to will now be £4,000 rather than £10,000. If you have previously ceased or reduced contributions to a pension scheme, this may mean there is now more scope to reconsider this decision. You should contact your Partner for more information.

As we have come to expect from Budgets, there is a further raft of measures to combat aggressive tax avoidance. This should act as further encouragement to engage in planning that is tried and tested.

Ahead of the Budget, there was considerable discussion about the possibility of change to pensions tax relief and Inheritance Tax, but nothing was forthcoming. However, it’s worth remembering that this is the first of two Budgets this year. The next is due to take place in the autumn, following the spending review.

For more information call the team at Orestone Wealth on 01803 659659 - Adrian Howard, Managing Director

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The levels and bases of taxation, and reliefs from taxation, can change at any time. Tax relief depends upon individual circumstances.