The Government and Chancellor Rishi Sunak left it quite late to announce tax plans for 2020/21. But they did have a few surprises last month that we usually don’t see in the Spring Budget. Income tax, corporation tax and VAT have all had their rates and thresholds frozen. Capital gains tax and pensions have also been changed. Read on to find out everything you need to know!
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What has happened to pensions and savings?
The Spring budget for 2020 has seen the annual pensions allowance remain at £40,000 in 2020/21, and you can still use any unused allowances from the previous three tax years.
Higher earners will also benefit after the tapered allowance thresholds were raised by £90,000 each.
As such, the threshold income rises from £110,000 to £200,000 in 2020/21. This is as well as adjusted income, which is increases from £150,000 to £240,000.
The maximum reduction has also changed, and if your income exceeds £240,000 then you will have an annual tapered allowance of £4,000 instead of £10,000.
You will also retain the entire allowance if you remain under both thresholds in 2020/21. If you have withdrawn any flexible benefits, the money purchase annual allowance of £4,000 will apply – rather than the annual allowance.
It’s also been announced that the lifetime pension allowance is now £1.0731m, and an extra tax will be charged for anything after that.
Did anything happen with ISA’s?
ISAs have remained tax-free up to an annual subscription value of £20,000, regardless if the income is from interest or investments.
Types of ISA are:
- Stocks and shares
- Innovative finance ISA’s
- Lifetime ISA’s
- Junior ISA’s
Is inheritance tax the same?
Yes. Despite all the discussions pointing towards things changing, only one change happened. And we already knew about it. The residence nil-rate band increases from £150,000 to £175,000 from 6 April 2020.
The nil-rate threshold stays at £325,000 and the flat-rate of inheritance tax stays at 40% for the next 12 months.
What has changed with Dividends?
The dividend allowance has remained at £2,000 for 2020/21.
Considering the frozen personal allowance, the maximum tax-free income you can receive through dividends in 2020/21 is £14,500.
Above the that threshold, dividends falling in the basic rate will be taxable at 7.5% and in the higher rate band at 32.5%. in the additional rate band, it’ll be taxed at 38.1%
Capital gains tax
Capital gains tax applies when you have any chargeable assets that you plan to sell, and they are worth more than when you paid for them.
Chargeable assets sold in 2020/21 for more than £12,300 will be automatically liable for capital gains tax. The amount charged depends on what type of asset is being sold and which marginal rate of income tax you pay already as different rates apply for basic, higher and additional rate taxpayers.
However, if the asset is held in trust, in which case capital gains tax is applied if the asset is sold for more than £6,150. The same rates apply as to individuals.
Furthermore, the lifetime limit for gains inside the entrepreneurs’ relief threshold has been reduced to £1m, this relief reduces the capital gains tax rate to a flat 10%.
If your plan is to sell a residential property after 6 April 2020, you’ll have to report the gain and pay any capital gains tax within 30 days of completion. This time frame is specifically for residential properties where capital gains tax is due on the sale.
It’s also going to be impossible to report and pay tax on the gain through the previous method of self-assessment.
Letting relief has also been changed, meaning that valuable gains tax break is now only available if you are in shared occupancy with a tenant.
Previously, the amount of letting relief was whichever was the lowest of private residence relief, the chargeable gain made from letting the home or £40,000.
For most cases, final-period private residence relief will also fall from 18 months to 9 months for 2020/21.
The Treasury has estimated that these changes to capital gains tax will increase receipts – all the way up to £17bn by 2024/25!
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