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The first Budget of any new Parliament is normally the one where the Chancellor has the political capital to make some major reforms – so Budget 2020 might see some adventurous measures to boost the economy.
Encouraging business investment is high on the Government’s agenda: increases in the rate of Research and Development expenditure credit (from 12% to 13%) and the Structures and Buildings Allowance (2% to 3%) have already been announced. We also expect that funding for the NHS will be increased, as well as many infrastructure projects. The Chancellor may also cut the rates of stamp duty land tax to help boost the housing market.
Raising the starting threshold of NIC from £8,632 to £9,500 and the substantial increase in the minimum wage (6.2%) should boost consumer spending. Employers fair less well, not only will they have to fund the minimum wage increase but the employers’ starting threshold of NIC will only increase by inflation. And, of course, the off-payroll labour/IR35 rules will be extended to private sector organisations from April 2020 (the current ‘implementation’ review is not thought likely to trigger major changes). On a positive note for GP employers it has recently been confirmed that the arrangements for centrally funding the additional 6.3% of employer superannuation contributions for employees will continue for 2020/21.
The Conservative manifesto acknowledged that Entrepreneur’s Relief (ER) from capital gains tax is not working as intended, but it would be very bold to simply abolish ER. Instead, it may be reformed to refocus it on longer-term business investment - for example, by extending and/or ¬phasing the holding period qualification rules and possibly the percentage holding requirements.
There are also some major new spending commitments to be paid for – for example, it is unlikely that the Chancellor will wish to borrow to fund the cost of long term social care. He may well choose to raise money for these by cutting back on existing tax reliefs under the guise of tax simplification. For example, the Office of Tax Simplification has said that inheritance tax is far too complex and outdated. The Chancellor might choose to increase the basic relief (the nil rate band) but collect more tax in the long term by removing/restricting complex reliefs (toughening the business property relief qualifying rules, removing gift reliefs and the main residence nil rate band etc.)
Similarly, pension tax relief might come under the spotlight as the Chancellor is already reviewing the controversial annual allowance charge with the aim of replacing the current “quick fix” solution for NHS staff for 2019/20. Under the current rules, not every individual is entitled to a £40,000 annual allowance: where an individual’s threshold income exceeds £110,000 there is a second test (at £150,000) which may reduce the allowance to a minimum of £10,000. This makes an annual tax charge for GPs and other medical professionals much more likely.
There were rumours that the Government may increase the first threshold to £150,000. This would only partially resolve the issue, and only for a short period, so a more radical approach may emerge. For example, the Chancellor may simply abolish the annual allowance charge altogether, but recoup the tax lost by cutting tax relief on contributions to a fixed 20% or 25% - a big change for higher and additional rate taxpayers who currently get relief at 40% and 45% respectively.
Please contact our team for help and advice on the financial implications of any of the Budget announcements.