Tag: Corporation Tax

A good or bad budget for your personal finances?.. Let’s find out!

Rishi Sunak’s pandemic budget was certainly one of history’s more unusual Chancellor’s statements, given the circumstances in which it was delivered.

The Chancellor continued to focus his attention on spending in order to help keep the UK economy and businesses afloat, as we slowly come out of the Covid-19 Pandemic. It’s widely accepted that all this spending will somehow have to be paid for further down the line. So with that in mind, on 23 March The Chancellor is also planning to announce a series of tax consultations, which should shine some light on the Government’s plans to start to recoup some cash and begin the long-term book balancing exercise.

For the moment there is very little change to key tax areas that we would normally be examining at this time of year. However, there were still a few things that were mentioned that we should have a closer look at from a financial planning perspective.

What does this mean for your Pension?
Rishi Sunak has frozen the Lifetime Allowance (LTA) at £1,073,100. This means that inflationary increases to the lifetime allowance have also been frozen and will remain at the current level until April 2026.

This extended period of no inflationary increase could culminate in larger LTA charges. However, it’s important to remember that your LTA isn’t a cap on what you can put into your pension. Looking at the bigger picture, there continues to be many reasons why those who may be affected by the LTA freeze should continue to save into any active schemes; especially as withdrawing funding would mean they lose out on any contributions they currently enjoy from their employers.

An increase in your personal allowance
Although there are no changes to the rates of income tax for 2021/22, there is an increase in the basic rate band and personal allowance in line with the Consumer Price Index.
With the basic rate band increasing to £37,700 and the personal allowance climbing to £12,570 with the higher rate tax threshold also increasing to £50,270. The Chancellor also announced that both the personal allowance along with the higher rate threshold would now be fixed until 2025/26.

Capital Gains Tax
Right now, there are no immediate changes to Capital Gains Tax (CGT). With the annual exemption figure remaining unchanged at £12,300 for individuals (and personal representatives) and £6,150 for trustees of settlements. These rates have also been set until 2025/26.

However, it’s worth remembering that the Government has indicated that it will be publishing further tax consultations on 23 March. So look out for any proposed changes in CGT later this month.

Inheritance Tax
Inheritance Tax (IHT) bands remain the same, with both the nil rate band and the residence nil rate band staying put at £325,000 and £175,000 respectively. Again this locking in of the rates has been fixed until April 2026.
The implication of this five-year freeze, is that more estates will cross the IHT threshold. With that in mind, it might be worthwhile checking that your estate planning is as up-to-date as it can be, in order to mitigate any unnecessary IHT bills.
We’ll also wait until the announcement by the Government on 23 March, to see if IHT is included in the tax consultations and if they do appear, how that may have any potential implications upon wealth transfer.

Corporation Tax increase
The rate of Corporation Tax, currently set at 19% is set to rise to 25% from April 2023 onwards. There is some relief for smaller companies with profits under £50,000, as they can continue to pay the current 19% rate.
The tapering relief for businesses with profits under £250,000 will also be reintroduced, meaning that they too will not reach the 25% payment rate.

IR35 changes to be implemented
One of the largest shake-ups of the workplace economy is the implementation of the changes to off-payroll working, usually referred to as IR35. Delayed because of the pandemic, from April 2021 all large and medium sized private companies will now become legally responsible for deciding if freelance contractors are now effectively employees.
If they are deemed to be employees, then from next month it is the company’s responsibility to collect income tax and NICs from the contractor’s fee and pay it over to HMRC. This has all sorts of implications for both company owners and contractors alike.

Stay safe, we’re here if your need us
As always, were here to help with independent and expert financial advice. If you have any questions regarding the budget, or any other aspect of your finances, then please get in touch with us at Bridgewater Financial Services; where we will be delighted to help guide you through your individual options and strategies.

The 2020 Budget and what it means for you

Rishi Sunak delivered not only his first budget, after finding himself in the position of Chancellor of the Exchequer, but it’s also the Government’s first budget since winning the General Election and leaving the EU. All alongside the growing threat from coronavirus.

Hailed by the Chancellor as “the budget of a Government that gets things done” and widely seen as a change of direction from the traditional fiscal approach of established Conservatism.  

So now the dust has settled, what does it all mean for us? 

Important points for high earners
SAVINGS: In the Finance Bill 2020 the government will set the 0% band for the starting rate of savings income. This means that the rate will remain at the current value of £5,000 for the whole of the UK for 2020 – 2021. 

PENSIONS: The two tapered annual allowance thresholds for pensions will both rise by £90,000. From 6 April 2020 the minimum tapered annual allowance will decrease to £4,000 (down from £10,000). From 2020 onwards the threshold at which an individual is assessed for taper will be £200,000, with the point at which your annual allowance begins to reduce being £240,000. 

Important points for business owners
CAPITAL GAINS TAX: The Finance Bill 2020 will reduce the lifetime limit on gains that are currently eligible for Entrepreneur’s Relief, down from £10 Million to £1 Million for all qualifying disposals made on or after 11 March 2020. 

CORPORATION TAX RATES: The Corporation Tax main rate from April 2020 will stay the same at 19%; with this rate being set in legislation in the Finance Bill 2020.   

ENTREPRENEURS’ RELIEF:  Entrepreneurs’ relief is viewed by the Chancellor as ‘expensive, ineffective and unfair’ with three quarters of the relieve going to just 5,000 people. Which is why Rishi Sunakstated that he wishes to make changes to entrepreneurs’ tax relief, rather than abolish it altogether, as he said that he ‘did not want to discourage genuine entrepreneurs’. As such, he is reducing the lifetime limit for relief from £10m to £1m.  

This reform is set to save around £6bn over the next five years, with around 80% of small businesses going unaffected.

Important points for non-residents purchasing UK property through companies
The 2019 Finance Act legislated that non-UK resident companies that operate a UK property business, or have other property income will now be charged Corporation Tax on property income or profits, rather than these charges being levied as Income Tax. Following the budget, the Finance Bill 2020 will ensure that these measures and changes are smoothly implemented and that the transition of the taxation of UK property profits from Income Tax to Corporation Tax delivers a more equal playing field for UK and non-UK resident companies alike.  

Non-UK RESIDENT STAMP DUTY: As promised in the 2018 Budget, and following a consultation, there will be a change in Stamp Duty Land Tax surcharge on non-UK residents purchasing residential property in England and Northern Ireland. The Finance Bill 2020-21 will introduce a 2% surcharge to take effect from 1 April 2021. 

For the avoidance of doubt, if contracts are exchanged before 11 March 2020 but complete or are substantially performed after 1 April 2021, then transitional rules may also apply. 

Other general but important points
INDIVIDUAL SAVINGS ACCOUNTS (ISA) & JUNIOR ISA’s: The adult annual ISA subscription limit for 2020 – 2021 will remain unchanged at £20,000. Where there will be an increase to £9,000 in the annual subscription limit for Junior ISAs. Both of these measures will apply to the whole of the UK. 

CHILD TRUST FUNDS: The chancellor announced an increase to £9,000 in the annual subscription limit for Child Trust Funds for 2020-21. This measure will apply to the whole of the UK. 

LIFETIME ALLOWANCE FOR PENSIONS: The on going Consumer Price Index (CPI) increase in the lifetime allowance for pensions will increase in line with CPI, rising to £1,073,100 for the tax year 2020 to 2021.  

PERSONAL TAX: The personal tax allowance remains at £12,500. Whilst the threshold for National Insurance contributions will rise from £8,632 to £9,500. This should remove 500,000 of the workforce from NI tax eligibility.  

VAT ON SANITARY PRODUCTS: The 5% VAT levied on women’s sanitary products will be scrapped. 

PLASTIC PACKAGING TAX: A £200 per tonne charge will be levied on all manufacturers and importers on any packaging made of less than 30% of recycled plastic. 

VAT ON DIGITAL PUBLISHING: The chancellor will abolish all VAT on digital publications including books, newspapers, magazines and academic journals from 1 December. 

Alcohol, Tobacco and Fuel
ALCOHOL: All duties on spirits, beer, cider and wine have been frozen. 

TOBACCO: Tobacco taxes will continue to rise by 2% above the rate of retail price inflation. This will add 27 pence to a pack of 20 cigarettes and 14 pence to a packet of cigars. 

FUEL: Fuel duty has been frozen for the 10th consecutive year. 

Any questions? Please get in touch
As always, were here to help, whenever you need us.

If you do have any questions regarding anything that the chancellor has changed or mentioned in his budget, or any points I’ve raised in this blog, then please get in touch with us at Bridgewater Financial Services, where we will be delighted to help guide you through your individual options and strategies.