Tax

Budget 2020: tax rates and allowances

This week, the Chancellor of the Exchequer; the Rt Hon Rishi Sunak MP, delivered the government’s Budget 2020.

The most important of the tax announcements was probably the reduction in the Entrepreneurs’ relief lifetime allowance from £10m to £1m.
Given that there was a head of steam building up for its complete abolition, most will be relieved that a significant level of relief has been retained.

There was little of direct impact for individuals, although the zero-rating of electronic books and publications from December 2020 will bring welcome price reductions in the run up to Christmas.

We have summarised some of the key measures for you below:

 

       2019/20

        2020/21

 

              £

              £

Income tax rates: England and Wales only
(non-dividend income)

 

 

0% starting rate for savings only (note 1)

      Up to 5,000

     Up to 5,000

20% basic rate tax

   12,501-50,000

   12,501-50,000

40% higher rate tax

 50,001-150,000

  50,001-150,000

45% additional rate tax

  Above 150,000

  Above 150,000

Scottish rates of income tax (non-dividend income)                                                   

19% starting rate

   12,501-14,549

   12,501-14,585

20% basic rate tax

   14,550-24,944

   14,586-25,158

21% intermediate rate tax

  24,945-43,430

   25,159-43,430

41% higher rate tax

  43,431-150,000

  43,431-150,000

46% top rate

  Above 150,000

  Above 150,000

Note 1: Scottish taxpayers pay the same tax as the rest of the UK on dividends and savings interest.


 

      2019/20

     2020/21

Income tax rates (dividend income)

 

Dividend allowance    

       £2,000

       £2,000

Dividend ordinary rate (for dividends within basic rate band)

         7.50%

        7.50%

Dividend upper rate (for dividends within higher rate band)  

        32.50%

       32.50%

Dividend additional rate (for dividends above higher rate band)

        38.10%

       38.10%

Child benefit/guardian’s allowance rates

 

 

Higher rate (eldest or only child) (per week)

          20.7%

        21.05%

Other children

          13.7%

        13.95%

Guardian’s allowance per week

          17.6%

         17.90%

1      An income tax charge will apply to taxpayers with ‘adjusted net income’ exceeding £50,000 in a tax year, when child benefit is also received by them or their partner. The charge will reduce the financial benefit of receiving child benefit for those with income between £50,000 and £60,000 and remove it completely for taxpayers with income above £60,000.

2      From January 2021, no child benefit payments are made in respect of children living overseas. This will apply to EEA migrants arriving in the UK under the new immigration system.

Personal allowances

             £

            £ 

Personal allowance (note 1)

         12,500

        12,500

Dividend allowance

          2,000

        2,000

Maximum married couple’s allowance for those born before 6 April 1935 (note 2) 

            8,915

         8,915

Married couple’s allowance – minimum amount 

          3,450

         3,450

Micro entrepreneur’s allowance: individuals making property or trading incomes below the level of the allowance will no longer need to declare or pay tax, while those whose income exceeds the allowance have the choice of simply deducting the allowance instead of calculating their exact expenses or calculating their profits in the normal manner

     Allowance:
          1,000
          each

    Allowance:               1,000
          each

Income limit (note 3)

        100,000

       100,000

Income limit for married couple’s allowance: born before 6 April 1935 

           29,600

         29,600

Blind person’s allowance

            2,450

          2,450

Rent-a-room relief

            7,500

          7,500

Transferable/shareable tax allowance for married couples and civil partners (note 4)

            1,250

           1,250


 

       2019/20

     2020/21

 

              £

            £

Personal savings allowance for basic rate taxpayers (note 5)

           1,000

         1,000

Personal savings allowance for higher rate taxpayers

              500

          500

Personal savings allowance for additional rate taxpayers

                 0

             0

Note 1: From 2016/17 onward, all individuals are entitled to the same personal allowance, regardless of the individual’s date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth.

Note 2: This allowance is reduced by £1 for every £2 of income in excess of the income limit, but married couple’s allowance will not reduce below £3,450.

Note 3: Personal allowances are subject to the £100,000 income limit, which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit, down to zero.

Note 4: This allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse or civil partner who is not liable to income tax, or not liable at the higher or additional rates, can transfer this amount of their unused personal allowance to their spouse or civil partner. The recipient must not be liable to income tax at the higher or additional rates.

If the couple marry or register a civil partnership, they will get the allowance on a pro-rata basis for the rest of that tax year. If one of them dies or there is a divorce or separation, the allowance continues until the end of the tax year.

National insurance

 

 

Lower earnings limit, primary class 1 (per week)

          £118

         £120

Upper earnings limit, primary class 1 (per week)

          £962

          £962

Apprentice upper secondary threshold (AUST) for under 21s/25s

          £962

          £962

Primary threshold (per week)

           £166

         £183

Secondary threshold (per week)

           £166

         £169

Employment allowance (per year/employer) (note 1)

          £3,000

        £4,000

Employee’s primary class 1 rate between primary threshold and upper earnings limit

             12%

           12%

Employee’s primary class 1 rate above upper earnings limit

              2%

            2%

Married woman’s reduced rate between primary threshold and upper earnings limit

           5.85%

          5.85%

Married woman’s rate above upper earnings limit

           2.00%

          2.00%

Employer’s secondary class 1 rate above secondary threshold

           13.80%

        13.80%


 

       2019/20

      2020/21

Class 2 rate (per week where profits are above small profits threshold)

         3.00%

         3.05%

Class 2 small profits threshold (per year)

         £6,365

          £6,475

Special class 2 rate for share fishermen (per week)

           3.65%

          3.70%

Special class 2 rate for volunteer development workers

           5.90%

          6.00%

Class 3 voluntary rate (per week)

          15.00%

          15.30%

Class 4 lower profits limit

           8,632%

          9,500%

Class 4 upper profits limit

         £50,000

        £50,000

Class 4 rate between lower profits limit and upper profits limit

            9.00%

            9.00%

Class 4 rate above upper profits limit

            2.00%

           2.00%

Note 1:

a)   From April 2020, this will be limited to employers with an employer NIC bill below £100,000 in the previous tax year.

b)   Any deemed payments made to off-payroll workers do not count towards the £100,000 employers (secondary) class 1 NICs total. You cannot claim employment allowance for these workers.

c)   Employment allowance cannot be claimed for off-payroll workers.

Pensions

              £

            £

Annual allowance (note 1)

         40,000

        40,000

Lifetime allowance

       1,055,000

       1,073,100

Money purchase annual allowance (note 2)

          4,000

          4,000

Note 1:

a)   The annual allowance is a limit to the total amount of contributions that can be paid to defined contribution pension schemes and the total amount of benefits that you can build up in defined benefit pension scheme each year, for tax relief purposes.

b)   From 2016/17 the annual allowance for those earning above the threshold income of £110,000 and £150,000 adjusted income is to be reduced on a tapering basis by £1 for every £2 of income, subject to a minimum allowance of £10,000. From 2020/21 the threshold income will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an adjusted income above £240,000.

c)   From April 2020, the annual allowance for individuals with total income (including pension accrual) of over £300,000 will reduce from £10,000 to £4,000.

Note 2: The annual allowance is currently capped at £40,000, although a lower limit of £4,000 may apply if you have already started drawing a pension.


 

       2019/20

      2020/21

Reliefs and incentives

 

 

Enterprise Investment Scheme (EIS) – maximum (note 1)

     £1,000,000

    £1,000,000

Venture Capital Trust (VCT) – maximum

        £200,000

     £200,000

Enterprise Management Incentive Scheme (EMI) – employee limit up to the value of £250,000 in a three-year period

        £250,000

      £250,000

Seed Enterprise Investment Scheme (SEIS) – maximum (note 2)

        £100,000

     £100,000

Social Investment Tax Relief (SITR) – maximum

     £1,000,000

   £1,000,000

Income tax relief on EIS schemes

             30%

         30%

Income tax relief on VCT schemes

             30%

         30%

Income tax relief on SEIS schemes

             50%

         50%

Income tax relief on SITR schemes

              30%

         30%

Note 1: From 6 April 2018, the annual limit is doubled to £2m, provided that any amount over £1m is invested in one or more knowledge-intensive companies.

Note 2: Capital gains tax reinvestment relief may also be available for investments made in 2018/19 on 50% of the amount invested.

Individual Savings Account (ISA):

             £

            £

ISA (NISA) annual limit

          20,000

       20,000

Junior ISA investment annual limit – under 18, living in the UK

           4,368

        9,000

Child Trust Fund annual limit

            4,368

         9,000

Lifetime ISA annual limit (note 1)

           4,000

         4,000

Note 1: To open a Lifetime ISA you must be 18 or over but under 40. Contributions can be made until age 50. The government will add a 25% bonus to the savings, up to a maximum of £1,000 per year. The lifetime ISA limit of £4,000 counts towards the annual ISA limit.

Capital gains tax

 

 

Rate

 

 

– basic rate tax payer

           10%

           10%

– higher rate tax payer

           20%

          20%

Gain on sale of residential property

  

– basic rate tax payer

            18%

          18%

– higher rate tax payer

             28%

          28%


 

       2019/20

      2020/21

Annual exemptions – individuals (per year)

          £12,000

       £12,300

Certain trusts for disabled persons (per year)

          £12,000

      £12,300

Other trusts (per year)

           £6,000

       £6,150

Entrepreneurs’ Relief lifetime limit (note 1)

     £10,000,000

    £1,000,000

Investors’ Relief lifetime limit

    £10,000,000

   £10,000,000

Entrepreneurs’/Investors’ rate

             10%

           10%

Chattels exemption

          £6,000

         £6,000

Note 1: Entrepreneurs’ Relief lifetime limit is reduced from £10m to £1m for disposals made on or after 11 March 2020.

Inheritance tax

 

 

Single person’s nil-rate band

     £1-£325,000

   £1-£325,000

Single person’s 40% band

   over £325,000

  over £325,000

Residence nil-rate band (RNRB) – maximum (note 1)

       £150,000

      £175,000

Reduced rate (note 2)

            36%

           36%

IHT rate (for chargeable lifetime transfers)

             20%

           20%

Married couples or civil partnerships allowance nil-rate band

       £650,000

      £650,000

Gifts to charities

         Exempt

        Exempt

Small gifts to same person

            £250

          £250

General gifts – annual exemption

           £3,000

         £3,000

Wedding gifts from parent

           £5,000

        £5,000

Wedding gifts from grandparent/party

          £2,500

        £2,500

Wedding gifts from other person

          £1,000

        £1,000

Note 1: The RNRB is available in respect of a main residence given away to children (including adopted, foster or stepchildren). Any unused nil-rate band transfers to the deceased’s spouse or civil partner, even where death predates the availability of the additional threshold. It applies in addition to the existing nil-rate band (NRB) or threshold (currently £325,000) if the individual and estate meet the qualifying conditions.

Note 2: The estate can pay inheritance tax at a reduced rate of 36% on some assets if you leave 10% or more of the net value to charity in your will.

Business Property Relief

 

 

Business or interest in a business and transfer if unquoted shareholdings

          100%

          100%


 

       2019/20

      2020/21

Taxation of trusts

 

 

Accumulation or discretionary trusts:

 

 

Trust income up to £1,000 – dividend type income (note 1)

          7.50%

          7.50%

Trust income up to £1,000 – all other income

           20%

            20%

Trust income over £1,000 – dividend type income (note 1)

          38.10%

         38.10%

Trust income over £1,000 – all other income

             45%

            45%

Interest in possession trusts:

 

 

Dividend type income

         7.50%

         7.50%

All other income

            20%

           20%

Note 1: Trustees do not qualify for the dividend allowance. This means trustees pay tax on all dividends depending on the tax band they fall within.

Corporation tax

 

 

All profits and gains (excluding determination agreements and diverted profits (note 1)

             19%

           19%

S455 tax on all loans made by close companies to participator

           32.50%

          32.50%

Capital allowances

 

 

Main writing-down allowance (reducing balance)

           18%

            18%

Special rate writing-down allowance (reducing balance)

            6%

             6%

Structures and buildings allowance (SBA)

             2%

              3%

Motor cars if CO2 > 50g/km but does not exceed 110g/km (note 1)   

            18%

            18%

Motor cars if CO2 > 110g/km (note 1)

             6%

             6%

FYA – New and unused motor cars if CO2 emissions are 50 g/km or less (or car is electric) (note 1)

           100%

          100%

Small pool write-off where WDV is £1,000 or less

            100%

          100%

First-year allowances for certain energy-saving/water-efficient products (note 2)

            100%

           NA

Annual investment allowance (AIA) (note 3)

       £1,000,000

     £1,000,000

Annual investment allowance

           100%

         100%

Note 1: From April 2021, the thresholds for FYA will be reduced from 50g/km to 0g/km. Main rate of 18% capital allowance will be applicable for business cars with CO2 emissions not exceeding 50g/k. Business cars’ CO2 emission exceeding 50g/km will be eligible for writing-down allowance at the special rate of 6%.

Note 2: From 1 April 2020 for incorporated businesses and from 6 April 2020 for unincorporated businesses, environmental enhanced capital allowances will be abolished.

Note 3: From 1 January 2019 the annual investment allowance is increased from £200,000 to £1m for investment made from 1 January 2019. This is temporarily increased for two years until 31 December 2020. The threshold will revert back to £200,000 from 1 January 2021.


 

       2019/20

      2020/21

Research and development tax credit rates

 

 

SME rate

           230%

         230%

Research and development SME payable credit

            14.5%

          14.5%

Research and development expenditure credit (RDEC) scheme

              12%

           13%

Film/High-end TV/videogames tax credit

              25%

           25%

Open-ended investment companies and authorised unit trusts

             20%

          20%

Patent box

 

 

Patent box

            10%

           10%

VAT

 

 

Standard rate

            20%

          20%

Reduced rate

             5%

           5%

Zero rate

             0%

           0%

Flat rate of VAT on gross turnover (for limited cost trader)

           16.5%

         16.5%

Normal scheme registration threshold

        £85,000

        £85,000

Deregistration threshold

         £83,000

        £83,000

Cash accounting scheme – maximum to join

      £1,350,000

     £1,350,000

Cash accounting scheme – exit threshold

      £1,600,000

     £1,600,000

Annual accounting scheme – maximum to join

       £1,350,000

      £1,350,000

Annual accounting scheme – exit threshold

        £1,600,000

     £1,600,000

Flat-rate scheme – maximum allowed to join

         £150,000

       £150,000

Flat-rate scheme exit threshold

         £230,000

      £230,000

 

 

 


 

       2019/20

      2020/21

Annual tax on enveloped dwellings (ATED)

             £ 

             £ 

More than £0.5m but not more than £1m

          3,650

         3,700

More than £1m but not more than £2m

          7,400

          7,500

More than £2m but not more than £5m

         24,800

         25,200

More than £5m but not more than £10m

          57,900

         58,850

More than £10m but not more than £20m

          116,100

         118,050

More than £20m

          232,350

         236,250

 

  

March 2020

LEGAL NOTICE

  

This is a basic guide prepared by ACCA UK‘s Technical Advisory Service for members and their clients. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.


Further guidance:

HMRC Employer Bulletin Budget Special (click here)
Tolley Budget Summary 2020 (click here)
HMRC Tax Agent Blog (click here)
HMRC – Minimum Wage (click here)
DansonOsborne Accountants (contact us)