Pensions, savings and tax – all important personal finance issues that came under the spotlight in Rishi Sunak’s first Budget on Wednesday. We explain how the changes could affect you…
There was even more interest than usual in this budget, with a new Chancellor, the first after Brexit, and being announced in the midst of the Coronavirus crisis.
As the government attempted to lessen any economic affects that the spread of the virus is having, the Bank of England also announced a cut in the base rate, dropping it by half a per cent to 0.25 per cent.
So, for savers, those relying on interest from savings to finance retirement, or anyone considering a new or re-mortgage, this is something to consider as part of your financial planning.
What other announcements will influence your personal finance situation and future planning? Well for a start, while the tax allowance hasn’t moved from £12,500; you can now earn nearly £900 per year more before being required to pay national insurance (the limit is now £9,500, up from £8,632). According to independent economists at the Institute for Fiscal Studies (IFS), this means 500,000 people will no longer have to pay National Insurance.
High earners have been waiting to see what was going to happen with the tapered annual allowance for pensions, which saw higher earners getting less generous relief on their pension’s contributions. This has led to doctors, for instance, refusing to work longer hours as they were simply being hit with bigger tax bills.
The level where the taper first applies has been increased considerably, taking the threshold to £90,000 – this means that if you have an income of less than £200,000 the taper will not apply to you – and you will have an annual allowance of £40,000. However, on the flip side, the annual allowance will now taper down to a minimum of £4,000 rather than £10,000. If you have stopped contributing to a pension scheme, or have cut down your contributions, you may wish to review your decision. An independent financial consultant will be able to help you make sense of these rather complex figures.
Investors will be pleased to see that the Capital Gains Tax exemption has risen to £12,300 (from £12,000). For parents planning to save for their children there’s good news as the annual limit for Junior ISAs and Child Trust Funds has more than doubled to £9,000 from £4,368 – this starts from the 2020/21 tax year.
It had been expected that there would be some announcements with regards to changes in pensions tax relief and Inheritance Tax, but they did not appear – although we mustn’t forget that there is another budget in the autumn, so they may well be included then.
For business owners and the self-employed, it is worth noting that the government has introduced more means to counteract aggressive tax avoidance, that Corporation tax has remained at 19 per cent, and that the lifetime gains limit on Entrepreneurs Relief has been dropped to £1 million. Also, those who work from home can now claim £6 a week (up from £4) off their income tax bills.
Further, Entrepreneurs Relief was widely rumoured to be being scrapped, but Chancellor Sunak has opted to reduce it from £10 million to £1 million. The rate was first launched in 2008 and allows entrepreneurs a 10% cut in the Capital Gains Tax they pay on the sale of their business, but will now only be available for significantly smaller sales.
Jonathan Bright, Managing Director of J Finance Limited had this to say:
“On the whole a positive Budget that has giveaways for low and high earners alike.
The massive capital expenditure planned will help to boost the economy over years to come and we can only hope that the fallout from Coronavirus will not dampen the effect too dramatically.
Higher earners will certainly benefit from the ability to save more toward retirement and the reduction in Bank of England Base Rate that was announced on the same day as The Budget will immediately filter through to Variable and Tracker rate mortgages, potentially affecting new Fixed rate offerings too.
Regular Pension and Mortgage reviews are always advisable but would seem to be even more sensible now.”
If you would like to discuss any changes to your financial situation following the Budget, tax year end, savings or any other financial matters, we will be happy to help. Please contact us without obligation.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email email@example.com