Updated 03 December 2020
The new Chancellor Rishi Sunak has delivered his first Budget after barely a month in the job. So how did he do – and what does it mean for your personal finances? Article by Nick Green.
One down, one to go. You may have forgotten that the UK is due to have two Budgets this year, as this March’s Budget was postponed from 2019. So today’s news is really only half the story – a cliffhanger, you could say. Whether Sunak’s announcements spell good news or bad news for you, things could change again in the autumn.
So what did Sunak’s first Budget deliver for you? We break down the key announcements one by one.
One of the biggest pieces of economic news today wasn’t even connected to the Budget. The Bank of England – which controls interest rates – has cut them to the lowest level in history (from 0.75 per cent to 0.25 per cent) as an emergency response to the impact of the coronavirus crisis. This will reduce mortgage repayment costs for anyone not currently on a fixed rate mortgage, and will enable people taking out a mortgage to borrow more. The Bank is also making available billions of pounds more funding for business.
Sunak unveiled a large stimulus package to tackle the economic impact of the coronavirus. This included:
The Chancellor has been under pressure to abolish entrepreneurs’ relief (which has allowed business owners to half their tax bill when selling shares in their companies). But Sunak didn’t quite go that far. Entrepreneurs’ relief remains, but the lifetime allowance has been slashed from £10m to £1m. This means that entrepreneurs can still save up to £100,000 in tax (where before they could save a million).
Keen perhaps to repair the government’s reputation as the ‘party of business’, Sunak has announced that research and development (R&D) investment will increase to £22bn a year. In practical terms, this will take the form of higher tax relief for companies that conduct R&D that qualifies. Raising the R&D expenditure credit to 13 per cent (from 12 per cent) should in theory motivate more large companies to carry out such research.
The earnings threshold at which people start paying National Insurance (NI) contributions has been raised from £8,632 a year to £9,500 as of this April. This should save the average employee around £104 a year.
As predicted, there were no changes to income tax bands. Basic rate tax (20 per cent) begins at £12,500 and higher rate (40 per cent) begins at £50,000.
There was bad news for residents of other countries who want to buy UK property. The Chancellor has added 2 per cent to stamp duty land tax. This is in addition to the 3 per cent surcharge levied on buyers who already own a property. Overseas buyers could now pay total stamp duty of up to 17 per cent on the most expensive properties.
There was good news for higher earners who are saving into pensions – and, indirectly, good news for hospital patients too. The tapered allowance threshold for pensions tax relief is rising from £110,000 to £200,000.
The taper is a gradual reduction of the annual allowance from £40,000 to £10,000 for people earning over a certain amount, putting them at risk of an annual tax charge on contributions and a lifetime allowance tax charge when drawing their pension.
This threshold has been a particular problem for senior doctors, who have run the risk of exceeding their pension annual allowance unless they reduce their working hours. This has led to a shortfall in consultants’ hours on duty since 2016 when the taper was introduced.
This increase in the threshold should fix the problem for 98 per cent of consultants and 96 per cent of GPs, as it now affects only those who earn £200,000 or over. However, for the highest earners the annual allowance will now drop to £4,000 - just a tenth of the standard annual allowance.
Once again, there were no signs that the Chancellor is ready to reduce pension tax relief for higher earners. That said, there is another Budget due in the autumn… so watch this space.
Not strictly a Budget announcement, but as of April the state pension is rising by an impressive 3.9 per cent to keep it in line with wage growth (as per the triple lock). There were fears that this Budget might remove or modify the triple lock, but for now it means that the maximum new state pension is £175.20 a week or £9,110.40 a year.
There were no big announcements on savings and investments. The only change was that the Junior ISA limit is rising to £9,000 for 2020/21, but the adult ISA limit remains at £20,000.
The National Living Wage for employees aged 25 and over will rise 6.2 per cent to £8.72 an hour as of April. The National Minimum Wage (for those aged 21 to 24) will rise 6.5 per cent to £8.20 an hour.
The Chancellor said he aimed to raise up to £4.4 billion by doing more to combat 'aggressive' tax avoidance and tax evasion. It is hoped that this will help to pay for at least some of the spending plans.
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