Rishi Sunak certainly enjoyed a baptism of fire as Chancellor, delivering his first Budget with just a few weeks’ preparation, and during a period of intense social and financial turbulence created by the Covid-19 pandemic, not to mention the (now almost forgotten) backdrop of the Brexit negotiations.

Although there was pre-Budget speculation in some quarters that this might be a tax-raising announcement – getting the bad news out of the way early on in the parliament – the reality could not have been more different. The Office for Budget Responsibility described the Budget as ‘the largest fiscal loosening in a generation’.

From a personal finance perspective, there were a number of interesting developments. Most are good news, but despite the overall increase in government spending and borrowing some are less positive.

Taxation

There will be an increase to the National Insurance Primary Threshold from £8,632 to £9,500 from April 2020 which will save a typical employee £104. This is the first step of the government’s manifesto pledge to raise the National Insurance threshold to £12,500.

Income Tax bands and rates remain unchanged, as does Corporation Tax, as the government has decided not to implement the planned reduction from 19% to 17%.

As had been expected, entrepreneurs’ relief has changed with effect from Budget Day. It has not been abolished, but the lifetime limit for gains has been reduced from £10 million to £1 million for disposals on or after 11 March 2020.

Pensions

The two tapered annual allowance thresholds for higher earners, will both be increased by £90,000. For many of our clients this will be welcome news, as anyone with taxable income below £200,000 in 2020/21 will now retain the standard £40,000 annual allowance. Not only will this increase the potential for tax-advantaged long-term savings, but it will also reduce the need for the complex tax calculations associated with the taper.

For the highest earners, however, the news was less welcome, as the tapering calculation will take the annual allowance to a minimum of £4,000, reduced from the current £10,000. This will negatively impact anyone with adjusted income (taxable income, plus pension accrual) of more then £300,000 in 2020/21.

As expected the lifetime allowance will increase in line with CPI to £1,073,100 in 2020/21 (up from £1,055,000).

ISA & Other Investments

Junior ISA and Child Trust Fund annual limits will be more than doubled, from £4,368 to £9,000 in 2020/21. This development will provide parents with an opportunity to build a considerable nest-egg for their children, but will all teenagers be ready to deal with the significant sum of money to which they will become absolutely entitled at this age? Using the full allowance each year from birth would, assuming a 4% rate of investment growth, result in an investment portfolio of £240,000 at 18!

The adult ISA and Lifetime ISA annual subscription limits for 2020/21 will remain unchanged at £20,000 and £4,000, respectively.

Following a recent court case, legislation was announced in the Budget to clarify the top slicing calculation for gains made on investment bonds after 11 March 2020. The new legislation will be of benefit in certain instances where larger investment gains reduce an individual’s personal allowance.

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