Budget 2020: announcements include major scale-back of Entrepreneurs’ Relief

11 Mar 2020

budget 2021

James Hender, Mike Hodges and Zena Hanks, partners in the Private Wealth Group at Saffery Champness have been considering some of the announcements in today’s Budget.

Entrepreneurs’ Relief

The government will reduce the lifetime limit in Entrepreneurs’ Relief for capital gains tax from the current £10,000,000 to £1,000,000

Mike Hodges comments:

“Mr Sunak has decided that the relief doesn’t work to encourage entrepreneurial behaviour.  So instead of benefiting people who have been successful, he is proposing to invest taxpayers’ money in helping those who start businesses. The headlines sound good, but we will need to see how this works in practice.”

Pensions tapered annual allowance

Pension taper thresholds increased by £90,000 to £200,000 and £300,000 respectively and tapered pension contribution limit reduced to £4,000 for those earning £300,000. 

Mike Hodges comments:

“The tweaks to the pensions taper threshold will help the widely-publicised issue with NHS consultants declining extra work on the basis that it would adversely impact their pension position and, according to the Chancellor, take 98% of them out of the trap they faced.

Consequently, thousands of high earners taking home over £110,000 a year can expect a pensions tax windfall.

However, for earners taking home over £300,000 a year and who are therefore on the lowest tapered rate, the announcement will be considerably less welcome. Their annual tax-free allowance will reduce from £10,000 to £4,000, potentially significantly impacting retirement decision making.”

Stamp Duty Land Tax surcharge for non-residents

The government will introduce a Stamp Duty Land Tax surcharge of 2% on non-UK residents purchasing residential property in England and Northern Ireland, to be introduced from 1 April 2021.

Zena Hanks comments:

“From April 2021, non-residents who buy UK properties will have to pay a 2% surcharge. This is unlikely to have a big impact on the housing market, but it will play well politically and will also bring in some money to help pay for the Chancellor’s Budget largesse – with a large amount of public spending planned which will require funding from somewhere.”

Anti-avoidance

The government has announced that it is investing in additional compliance officers and new technology for HMRC in order to tackle tax avoidance, evasion and other forms of non-compliance, that it believes will raise an additional £4.7 billion between now and 2024-25.

James Hender comments:

“The government clearly believes that there is still wide scale tax avoidance occurring, but following years of tightening of the anti-avoidance rules the issue is perhaps not as pronounced as the government thinks it is.

“To some extent, the rhetoric on tax avoidance has become something of a hygiene factor for Chancellors who, understandably, want the public to see them as doing all they can to ensure fairness in the tax system.

“By investing in HMRC resources, the Chancellor wants to raise over £4 billion over the coming years and it will be interesting to compare how much of this is actually recouped in practice when the reality is that a large part of the tax gap is caused not by avoidance or evasion but by taxpayer error or the difficult to trace cash-economy.”

“While many were expecting a fairly radical budget from this Conservative government it seems clear that coronavirus has played a decisive role in the Chancellor’s decision making. Many of the reforms that were expected, not least around pensions relief and inheritance tax, seem to have been kicked into the long grass for the time being. Business continuity, supporting SMEs and workers, and safeguarding the NHS have, rightly, taken priority.

“In addition, time has not been on the Chancellor’s side. Mr Sunak had just over a month to prepare a budget which had many boxes to tick even before factoring in dealing with Coronavirus, and it seems that as a result, we will have to wait for the Autumn Budget for any significant changes from a tax perspective.”

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