Budget 2020 predictions: Fact or fiction?
Tuesday, 25 February 2020
On Wednesday 11 March 2020, Rishi Sunak will deliver his first Budget for the new Boris Johnson Conservative Government. This will be the first Budget since Philip Hammond’s on 29 October 2018 and as usual, the rumour mill has swung into action over what will be included. Below are areas of tax legislation thought to be under consideration for reform, which may affect those in the legal sector.
Pension tax relief
In previous Budgets, reforms have been introduced to restrict the level of contributions on which tax relief can be obtained for high earners. Broadly, if your income is below £150,000 you qualify for tax relief on contributions up to £40,000, but if your income exceeds £210,000 this is reduced to £10,000, with levels of income in between seeing relief tapered accordingly. Unused tax relief from the previous years can be utilised on contributions exceeding the annual allowance, subject to conditions being satisfied.
Will this Budget finally see the Government restrict tax relief to basic rate tax relief only? If you’re considering making additional pension contributions this year, advancing the payment to a date before 11 March 2020 seems the sensible option.
Entrepreneurs’ relief is a tax relief that reduces the rate of capital gains tax payable on the gain made on the disposal of a qualifying business or certain shares in trading companies. It was introduced to achieve its stated aim of encouraging business investment, but has this been achieved? From 6 April 2019, to qualify for entrepreneurs’ relief you need a 5% stake in the business which you must have held for a two-year period, meeting various qualifying conditions. This relief has been utilised for short-term investments to reduce tax liabilities and, therefore, to meet its stated aim, the stake and ownership qualifying period could be extended. If you’re considering a disposal of a qualifying business, a disposal prior to Budget day might be tax beneficial.
Currently only 5% of estates pay inheritance tax as a result of tax-free allowances, exemptions, pre-death gifts and estate planning. A cross-party group of MPs has called for a complete shake-up as to how this tax works, to include:
- A cut in the flat rate of tax to 10% (or 20%)
- Abolition of exemptions such as business property relief and agricultural relief
- Removal of seven-year lifetime gift clock
- Tax payable on lifetime gifts
In summary, after an initial tax-free exempt band, all lifetime gifts and value of full estate at death would be subject to inheritance tax. If you’re conducting estate planning, would it be wise to conclude prior to 11 March 2020?
As we know from previous Budgets, rumours are often unfounded, with predicted legislation changes not being mentioned. Clearly, the above are under consideration for amendment by the Government but the changes may not all be implemented at once. It may just be that consultation documents are issued. However, if you’re currently considering pension contributions, entrepreneurs’ relief or inheritance tax, it would be sensible to conclude as soon as possible.
If you wish to discuss any of the above, please get in touch. Call 0330 024 0888 or email firstname.lastname@example.org.