Chancellor's briefcase outside number 11 Downing Street

Article

How did the Budget affect you and your finances?

What does the Budget mean for you?

Rishi Sunak’s first Budget focused on the Government’s response to Coronavirus, but there were also a number of important announcements that could affect your personal finances.

Here’s a summary of the key points:

Pensions

Despite predictions that the many tax advantages of pensions would be trimmed back, they were left untouched.

The vast majority can still pay in up to the level of their earnings, capped at £40,000 each tax year.

The complex ‘taper’ rules that restrict the amount that higher earners can pay into their pensions will be eased from 6th April 2020. Previously, those with incomes of £110,000 or more were potentially at risk of having their pension contributions restricted, this threshold is being increased to £200,000. 

Only those with ‘adjusted income’ (broadly income plus employer pension contributions) of £240,000 or more will see the amount they can pay in reduced.

There is a ‘sting in the tail’ for those with ‘adjusted income’ over £300,000 who could see their maximum pension contributions reduced below the current minimum allowance of £10,000.           

What does it mean for me?

Pensions remain one of the most tax efficient ways to invest. In addition to tax relief on what you pay in, any growth is free of UK Income tax and Capital gains tax. Anything left in your fund on death is normally free of Inheritance tax.

Those who have been caught by the ‘taper’ rules previously should take advice to check the tax saving opportunities the change offers.

ISAs

The Chancellor gave a helping hand to those investing for their children’s future by more than doubling the amount that can be invested for a child in a Junior ISA, from £4,368 to £9,000 each tax year.

The standard ISA allowance remains at £20,000.

What does it mean for me?

If you’re putting money aside for your children’s future the increased Junior ISA allowance will allow you to shield more from UK income tax and capital gains tax.    

Capital gains tax

The Chancellor announced a significant change to Entrepreneurs relief, which is available to those disposing of part or all of a trading business. Prior to the announcement those claiming the relief would pay only 10% capital gains tax (rather than the top rate of 20%) on up to £10m of lifetime gains. This has now been reduced to £1m

What does it mean for me? 

If you’re thinking about or in the process of selling your business, it’s important to seek advice on the implications of the change.

Income tax

The tax free personal allowance has been frozen at £12,500 and the 20% and 40% tax bands remain unchanged.

Income between:

£1 to £12,500 – taxed at 0%

£12,501 to £50,000 – taxed at 20%

£50,001 to £150,000 – taxed at 40%

£150,000 + - taxed at 45%

What does it mean for me?

The freezing of tax bands means that more people will be caught by 40% and 45% tax rates. It’s important to seek advice to ensure you’re aware of the tax saving options open to you.

Budget March 2020