Budget 202012th March 2020
We outline below the three changes that IFAs should make their clients aware of.
Pension Annual Allowance
The Chancellor, Rishi Sunak announced in his Budget Speech – “To significantly reduce the amount of people the tapered annual allowance affects, I am increasing the taper threshold by £90,000 removing anyone with income below £200,000. Based on their vital work for the NHS that will take around 98% consultants and 96% of GPs out of the taper altogether.”
He also went on to add that for earners above £300,000 per annum, the reduced annual allowance would fall from £10,000 to £4,000. However, the exact mechanics of this have not been explained. Currently, earners over £150,000 have their annual allowance reduced by £1 for every £2 they earn over £150,000, up to a maximum of £210,000 at which point the annual allowance has fallen on a 2 for 1 basis by £30,000 to £10,000.
Both the £150,000 and £210,000 threshold have been increased by £90,000 to £240,000 and £300,000. If the 2 for 1 reduction basis still applies, the Annual Allowance when earnings reach £300,000 would still be £10,000, so it would appear that the Annual Allowance will drop by a further £6,000 if income exceeds £300,000.
Many commentators feel that the Chancellor missed an opportunity to simplify pension tax relief by removing the Tapered Annual Allowance altogether. However, it is more likely that this move was driven by expediency to address the immediate NHS issues, especially against a background of Covid-19, and that a much more fundamental review of pension tax relief and allowances is still a future probability.
As expected, the Lifetime Allowance, the maximum amount someone can accrue in registered pension schemes over their lifetime without incurring an additional tax charge, was increased in line with CPI, to £1,073,100.
The annual subscription limit for Individual Savings Account (ISA) for 2020-21 will remain unchanged at £20,000.
However, the Junior ISA and Child Trust Fund annual subscription limit is to be increased from £4,368 to £9,000. This provides an opportunity for those who wish to save on behalf of their children, to increase the amount they can invest on an annual basis.