In a rousing speech the new Chancellor pronounced he was getting on with fulfilling manifesto pledges whilst addressing the immediate and impending coronavirus crisis.
Alongside emergency funding for the NHS, he announced a range of measures to support small businesses, employers and employees to cope with the crisis and those likely to suffer hardship due to either not being able to work or not being entitled to sick pay.
He then went on to outline his plan for ‘prosperity tomorrow’ with plans for significant infrastructure spending, devolution to the regions and even a re-location of Treasury offices throughout the UK to shift the focus from London.
In this insight, FPC senior planners Nick Evans and Paul Welsh highlight a few points that are relevant for your financial planning:
Entrepreneurs’ Relief (ER) and Capital Gains Tax
The Chancellor resisted calls from some quarters for ER to be abolished but did take on board the concerns from Resolution, the Confederation of British Industry and others that ER is not working as intended. He retained the relief but at a much lower level of just £1m with immediate effect but he stressed that the UK needs risk taking and creativity and that the money saved would be diverted back into incentives for business.
Nick Evans comments:
“Thankfully there were no changes in capital gains tax, just a small increase in the annual allowance which is good news for investors in general but for business owners exiting they are now looking at 20% over the £1m threshold. This does however remain a relatively low rate of capital gains tax compared to income tax rates although interest in other options such as a sale to an Employee Ownership Trust which can carry a zero CGT rate may now become more attractive.
Those individuals who disposed of a business in 2019/20 but who are perhaps paid in stages may wish to consider paying all their CGT up front to secure the higher threshold. This is an area where specialist accountancy advice is of course recommended.”
Pensions and Investment Planning
The lifetime allowance has increased as planned by CPI to £1,073,100 and there is some relief for higher earners, as the threshold raised at which the amount that can be contributed to pensions drops from £40,000 down to £10,000. Now in some circumstances it can drop to just £4,000 though but many of the GP’s and Consultants who were getting caught in this trap will now be somewhat appeased.
Top slicing and the tax treatment of investment bonds remains intact but guidance is clarified as to how an individual’s tax allowances are applied to income before gains on bonds.
No change with £20,000 per person still allowed and the Junior ISA limit is doubled to £9,000.
No change to corporation tax, income tax or the tax on dividends with a 7.5% rate maintained for basic rate taxpayers. Allowances have however frozen at the current level with the personal tax free allowance of £12,500 and higher rate tax threshold of £50,000 maintained for 2020/21.
Paul Welsh comments:
“Tax wrapper diversification is as important as investment diversification within a portfolio and we utilise multiple tax wrappers to help clients manage their tax burden so we are pleased to see the status quo maintained. There remains plenty of scope for the effective management of tax on investment portfolios.
For some of our high earning clients there may also now be a bit more scope for pension funding next year but most importantly higher rate tax relief which we thought might have been up for grabs has been maintained.
The Junior ISA allowance boost may also act as a trigger for some to think about saving for children or grandchildren but they do already have personal tax allowances that can be utilised so JISA’s aren’t the only option. You might also not be so keen on building up substantial funds to which they will have direct access at a relatively early age so Trust planning may still be preferable for some.”
Inheritance Tax Reform
Surprisingly, despite the recent calls for reform there was silence on the thorny subject of inheritance tax.
It may be this has been kicked into the long grass whilst other more pressing issues of dealing with the coronavirus threat take precedence. Any change to the inheritance tax favoured status of smaller companies and those listed on the Alternative Investment Market (AIM) would seem counter intuitive at a time when the UK economy needs business to be incentivised to grow and individuals to invest, but we doubt the Office of Tax simplification has gone away, so we would expect further consultation to be on the agenda before too long.
VAT on Financial Services
And finally, the government has announced it will set up an industry working group to review how financial services are treated for VAT purposes. The bulk of our fees are exempt from VAT at present so any changes would not be welcomed and may act as a barrier to individuals taking appropriate advise. We will as you would expect monitor developments very closely!
Source: www.gov.uk (click on this link to see the full Budget Policy Paper)