Budget 2020: In review
Martin O’Gorman, Pensions and Risk Specialist, VitalityInvest
This year’s Budget was delivered against the background of an almost unprecedented challenge in the form of the global outbreak of the Covid-19 virus. The Bank of England had already reduced interest rates from 0.75% to 0.25% in an attempt to support the economy, so the Budget would arguably need to address the impact of the short-term effects of the outbreak.
This was not the only issue the Chancellor, Rishi Sunak needed to address. The recent election has delivered a mandate for changes in the economy following Brexit and changes to the economic geography of the country as part of ‘levelling up’.
Short-term impact measures
With all of this in mind Rishi Sunak has put in place measures to address the impact of the Covid-19 outbreak that are “temporary, targeted and timely” to ensure the economy is supported in the face the ongoing impacts.
Additional funds have been allocated to the NHS and public sector to ensure it has the resources to deal with the virus. Individuals and businesses have also been given support with Statutory Sick Pay from day one rather than day four, sick pay for all those who self-isolate and financial support for sick pay funding for small businesses. Additionally businesses are being supported with a government backed loan scheme providing £3,000 to almost 700,000 firms and the increase and expansion of the business rates discount arrangement – effectively removing business rates for 12 months to offset the potential financial impact of Covid-19.
Pensions and savings
From a financial planning perspective, there were no surprises or changes to tax rates, personal allowances or the ISA allowance but Junior ISA limits were increased to £9,000 from April and the pensions Lifetime Allowance will also increase by to £1,073,100.
There were however two key announcements in relation to the funding of pensions that have been on the agenda for some time. Firstly, the tapered annual allowance is being amended so that threshold income and adjusted income are increasing to £200,000 and £240,000 respectively with the minimum annual allowance falling to £4,000 from £10,000 for those with adjusted income above £312,000. This will have a large impact on pension savings for high earners but does address a significant concern for NHS workers and ensures that the vast majority will be able to work and save without the fear of unexpectedly large tax bills.
The second announcement was a review of the treatment of non-tax payers in net pay pension schemes. At present this cohort of savers does not benefit from tax-relief in the same way as those who pay contributions direct so this proposal is a welcome measure to address this inequity.
Summary of changes
Despite a number of opinions suggesting that the budget was not as ‘green’ as they would have liked the Chancellor has clearly turned on the spending to not only address the short-term needs of the Economy while it deals the Covid-19 outbreak but also to put in place the foundations to deliver on the electoral promises.
There was criticism from Labour that the Budget did not support low-income workers in sufficient depth and around the absence of any additional support for social care but what is clear is that the Conservatives have altered their approach to the management of public finances.
The changes to the Tapered Annual Allowance will come as a relief to high paid NHS doctors and consultants and if the budget promise to change tax relief for non-tax payers in net pay schemes can be delivered in a timely manner then these are two initiatives to be welcomed. Similarly, the government measures to address the short-term needs of the economy should be viewed in a positive light.
The increase in the National Insurance primary threshold and the tax rates have been known for some time but there are, as ever, reasons to revisit clients following the Budget. Following changes to Entrepreneurs relief anyone considering making a qualifying disposal will now need to consider whether the lifetime reduction in relief from £10 million to £1 million will have an impact.
The increase in the Junior ISA subscription limit from £4,368 to £9,000 presents an opportunity to revisit clients with inter-generational planning strategies in place and clients who have opted out of pension schemes or ceased contributing as a result of the impact of the tapered annual allowance can now reconsider future contributions following the increase in threshold limits.
The information provided is based on our current understanding of the UK legislation and may be subject to amendments as a result of changes in legislation. All references to taxation are based on our understanding of current UK taxation law and may be affected by future changes in legislation, the individual circumstances of the investor and pension scheme conditions. The information provided in this article is not intended to offer advice.
VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority. 13/03/2020
This article’s view is based on the law, practices and conditions as at the day of publication. While we have made every effort to ensure they are accurate, we accept no responsibility for our interpretation or any future changes.