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Budget 2020 – the impact on personal finances

There were relatively few rule changes affecting investors in today's Budget, though a large increase in the Junior ISA allowance was a pleasant surprise for many families.

Budget

by
Rob Morgan

11.03.2020

Today’s Budget was understandably focused on recent events. Against a backdrop of an emerging public health crisis and an oil price war, a radical shake-up of individuals' personal finances was always unlikely. 

Although chancellors famously enjoy pulling rabbits out of hats, the priority on this occasion was real-world help for businesses and households to manage the economic shock from the spread of coronavirus. Rishi Sunak’s £30bn programme to protect the UK from the coronavirus includes financial assistance to keep small businesses going, help for those unable to work because they’re ill or isolated and emergency funding for the NHS.

Earlier today, the Bank of England also did its bit to stabilise the economy, unveiling a wide-ranging response including a 0.5% interest-rate cut. This will help ease economic conditions and decrease borrowing rates but represents further pain for savers already experiencing exceptionally low levels of return on cash.

To fund his considerable spending plans Mr Sunak will rely on borrowing rather than increased taxation, and there were no major changes to income, capital gains or inheritance tax. Even fuel and alcohol duties were frozen, contrary to many people's expectations. There is, of course, another Budget expected in the autumn when changes might be further considered, and reforms in areas such as pensions and inheritance tax are more likely. Hopefully, by this point the worst of the Covid-19 impact will be behind us. As far as this Budget goes, though, here are the main personal finance changes to note.

ISAs

The ISA allowance remains at £20,000 for the new tax year starting on 6th April 2020, but the Junior ISA limit will be more than doubled from £4,368 to £9,000. This move will help families build a significant nest egg for their children’s future, whether used for higher education, a house deposit or simply to give them a great start in life.

Assuming the Junior ISA allowance stays at £9,000, parents are able to contribute more than £160,000 during their child’s lifetime in a tax-efficient environment, which could result in a pot worth £260,000 by the age of 18 assuming 5% growth a year. There’s more on Junior ISAs here.

Pensions

The pension annual allowance – the maximum you can contribute to a pension scheme in a tax year – is reduced, or ‘tapered’, for those earning over £110,000 a year. This can cut the standard allowance of £40,000 to as little as £10,000 for those earning over £150,000. Those straying over their allowance face a tax charge, but the limits will be increased from next tax year in order to remove a key barrier preventing many GPs working more hours at a time when the NHS requires their services. It means also means many higher earners in other areas have greater opportunity to boost their pension savings.

“Threshold income” will be increased by £90,000 to £200,000, meaning individuals with income below this level will not be affected by the tapered annual allowance, which will only begin to taper down for individuals who also have an “adjusted income” above £240,000. There’s more on how threshold and adjusted income work here.

For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.

The lifetime allowance, the maximum amount you can accrue in a registered pension scheme in a tax-efficient manner over your lifetime, will increase in line with consumer prices inflation (CPI) for the 2020-21 tax year, rising to £1,073,100.

Capital Gains Tax

The annual capital gains tax allowance for individuals will rise from £12,000 to £12,300.  Capital Gains Tax (CGT) is the tax you pay when you realise a profitable investment – unless it is in a tax-efficient wrapper such as an ISA or pension. You can realise total profits on investments of up to value of the allowance in a particular tax year without paying CGT.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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