Budget 2020 – what it means for tax
In a budget that was an emergency in all but name, new Chancellor Rishi Sunak spent big. £30bn worth of measures to mitigate the economic impact of Covid-19 dominated the announcements and tax took a bit of a back seat.
Our experts have covered the key tax matters here, and if you prefer, Kate Naylor also features in a short video about the Chancellor’s announcements. Please get in touch if you would like to talk about how the changes might affect you.
As widely anticipated, the Chancellor announced immediate changes to ER for disposals on or after yesterday’s Budget. Although the Chancellor didn’t go so far as to scrap the relief altogether, he reduced the lifetime limit on which capital gains are taxed at 10% from £10 million to £1 million.
Anti-avoidance measures were also announced to counteract situations where individuals have sought to take advantage of ER before Budget Day, in anticipation of the change. The new draft legislation suggests that the anti-avoidance could apply to a wider range of disposals, made between 6 April 2019 and 11 March 2020, than we expect was intended. If this applies to you, please get in touch and we can help you to review your position.
Investors Relief remains unchanged with a lifetime limit of £10 million.
To support the Government’s intention to retain and recruit NHS staff, changes from 2020/21 will limit the impact of pensions tax relief restrictions for high earners (the tapered annual allowance) which had otherwise caused many doctors to leave the NHS. To achieve this, the income thresholds at which the tapered annual allowance takes effect have been increased by £90,000 from 6 April 2020.
Those with total taxable income of less than £240,000 will no-longer be caught by the restrictions and will still able to contribute up to £40,000 per year to their pension.
To balance the cost of extending the tax relief, the minimum annual allowance (previously £10,000) has been further reduced to £4,000 – this means that those with income of more than £300,000 will see a reduction in their annual allowance and pay additional tax.
The Chancellor confirmed a 2% SDLT surcharge for non-UK residents buying UK residential property after Brexit. The surcharge will apply to purchases from 1 April 2021.
Despite recent reports on the proposed simplification of IHT and speculation of increased CGT rates, there were no new proposals or announcements of consultations in these areas.
Likewise, the Government have not released any further detail on potential changes to Trust taxation.
The Chancellor confirmed that changes to the treatment of individuals who work like employees but operate through their own companies will apply from 6 April 2020. This means medium and large businesses will be responsible for determining the employment status of these individuals.
If these individuals should be treated like employees, then PAYE / NI should be operated on the payments to them.
The rate of capital allowances available on construction and renovation work that commenced after 28 October 2018 has been increased from 2% to 3% of the qualifying costs incurred on a straight-line basis. This applies from 1 April 2020 for companies and 6 April 2020 for individuals and, where a chargeable period spans these dates, the rate is apportioned.
The ability to claim 100% capital allowances on low emission vehicles has been extended to April 2025. However, the threshold for what constitutes a low emission vehicle will reduce from 50g/km to 0g/km and from 110g/km to 50g/km to claim allowances at 18%. This means that from April 2021 all cars with emissions over 50g/km will only be able to claim capital allowances at 6%.
The limit for the annual investment allowance that provides for 100% allowances on the purchase of qualifying assets will fall from £1m back to £200,000 from 31 December 2020. If you are making large capital expenditure in this next year you need to be aware of this change and may want to accelerate purchases, so they occur before 31 December 2020.
As previously announced, UK corporation tax will remain at 19%.
For companies who have profits that exceed £5m, the offset of carried forward losses is restricted to 50% above that level. This restriction now also applies to capital gains.
The budget included a lot of talk about R&D and additional spending in this area.
From a tax perspective, this means that the rate for claims under the large company scheme increases from 12% to 13%. This mostly effects large companies but can apply to smaller companies who have made claims under this scheme because they have grant funded R&D or are subcontractors of large companies.
The cap on the tax credit that would be repayable, which was based on PAYE paid by the company, has been delayed until 1 April 2021.
There will also be a consultation to determine whether expenditure on data and cloud computing should qualify.
The flat rate for claims to cover household expenditure by employees who work at home will increase from £4 to £6 a week from April 2020.
If you would like to talk about how the changes might affect you, please get in touch.