Budget 2020 – Implications of today’s budget for private clients

Wed 11 Mar 2020

The Chancellor’s Budget announcement today contained a raft of giveaways for business but how will it affect you personally?

Currently tax relief on pension contributions is limited to the annual allowance of £40,000. However, if your ‘threshold income’ exceeds £110,000 and ‘adjusted income’ (i.e. including employer pension contributions) exceeds £150,000, the annual allowance starts to reduce from £40,000 reaching a minimum of £10,000 where ‘adjusted income’ exceeds £210,000. This has caused problems for many high earners including the well-publicised issues of NHS doctors turning down shifts to avoid exceeding the thresholds.

From 6 April 2020, both thresholds are being increased by £90,000, so annual allowance tapering will only apply if an individual’s ‘threshold income’ exceeds £200,000 and their ‘adjusted income’ exceeds £240,000. This is good news for many higher earners as it could significantly increase the amount they can contribute to their pensions in a tax efficient manner.

On the downside, where tapering applies, the minimum annual allowance will be reducing from £10,000 to £4,000, which will affect those with an adjusted income in excess of £300,000.

Away from pensions, while the tax free personal allowance will remain at £12,500, the threshold from which employees start to pay National Insurance will increase from £8,632 to £9,500 from April 2020 putting an extra £100 a year in the pocket of the average employee.

The income tax rates and bands are remaining the same, however the Chancellor announced a further increase to the CGT annual exempt amount from £12,000 to £12,300 from April.