The recent Budget was hotly anticipated with many commentators expecting the Government to refocus its attention on the ‘domestic tax and spend agenda’, having put Brexit to bed. The coronavirus outbreak has put a bit of a spanner in the works here and the new Chancellor, Rishi Sunak, has had something of a baptism of fire. With global stock markets facing unprecedented pressures and an emergency interest rate cut by the Bank of England announced only hours earlier, the chancellor took to the dispatch box to announce a £30bn package of measures to stimulate the UK economy. 

However, the question on everyone’s minds is how all the emergency measures would be paid for. Top of the agenda was, as predicted, a cut to Entrepreneurs’ Relief (ER). Although the government stopped short of scrapping the relief entirely, the allowance has now been significantly curtailed. However, it could have been a lot worse. Rumours of an attack on Inheritance Tax and pension reliefs turned out to be unfounded, at least for now.

In this note, I seek to highlight the main points of the Budget which will be of interest to clients and provide some comments and observations about their implications. I will not attempt to provide a comprehensive summary of all the tax points in the Budget.


Higher earners have doctors to thank for a relaxation in the amounts that can be contributed to a pension without restriction. Currently, anyone earning over £110,000 (who has a total income of over £150,000, including their pension contributions) would not be able to contribute the full £40,000 annual allowance into their pension. Instead it would be tapered by £1 for every £2 that their income exceeds £150,000, down to a £10,000 minimum contribution.

From 6th April 2020 those earning up to £200,000 (or £240,000 with the pension contribution) are no longer caught by these tapering rules; allowing a full £40,000 annual contribution to be made. A sting in the tail is that the minimum tapered allowance will be reduced from £10,000 to £4,000. Therefore, anyone earning more than £300,000 will be worse off as a result.

Unfortunately, there is no increase in the Lifetime Allowance (LTA) for pensions, beyond the Consumer Prices Index inflationary increase which will take the limit to £1,073,100 from 6th April 2020.

OUR VIEW: This is a welcome change, as it allows many more high earners to help fund their retirement without unnecessary restriction. The reduction in the minimum tapered amount for those earning over £300,000, seems a fair way to counter the increased tax benefits to those earning slightly less. As a result of the relatively low LTA, in reality, restrictions still apply (albeit in a different way) to pensions for those high earners.


Top Slicing Relief

Insurance Bonds Top slicing relief (‘TSR’) is a long standing relief that allows gains arising in a year on the encashment of insurance bonds, to be split as if taxed over the years of ownership, facilitating relief from what could otherwise be higher or additional rates of income tax. The amounts involved can be significant where the policy has been held for several years.

In calculating TSR, HMRC’s view to date has been that the personal allowance is restricted if the gain (with it all included in the year of encashment) pushes the taxpayer’s income over £100,000. Draft legislation has been released and is effective from today which allows the reinstatement of the personal allowance if the income, with the inclusion of the annualised gain, does not exceed £100,000.

The legislation also clarifies the treatment of other allowances and reliefs in the TSR calculation, by confirming they must be set as far as possible against other income in preference to the insurance gain. They remove the general ability to offset other allowances and reliefs in the most favourable manner, for example, personal savings allowances. This will impact upon taxpayers differently on a case by case basis.

Other savings: With interest rates reduced today, savings may not be on everyone’s minds. However, it is worth noting the Junior ISA allowance has more than doubled from £4,368 to £9,000 per annum from 6th April 2020. The normal ISA allowance also remains at its generous level of £20,000 per annum

OUR VIEW: As the new legislation is not retrospective, it remains unclear whether historical claims made on the basis that the personal allowance should be allowed, will now be settled in the taxpayer’s favour. HMRC has recently appealed a court decision (the Marina Silver case) made in favour of the taxpayer on this very topic. Apparently, this case will still be heard in order to settle any ambiguity for earlier years.


The Chancellor confirmed the threshold beyond which National Insurance Contributions (‘NICs’) become payable will be significantly increased from 6th April 2020 as part of the Government’s commitment to reduce contributions by the low paid. This measure had been previously announced in February. For 2020/21, the threshold at which taxpayers start to pay NICs will rise to £9,500 per annum.

The increase applies to both employed (Class 1) and self-employed (Class 4) individuals. The initial increase is part of the Government’s overall aim to raise the NIC threshold to £12,500 per year, in order to align more closely with the income tax personal allowance. Whilst the Class 1 primary threshold and Class 4 lower profits limit will increase, the upper limits will stay the same, although other thresholds will see an inflationary rise. The threshold increases will not affect entitlement to contributory benefits such as the State Pension.

The Government says it is keeping to its manifesto promise not to increase the rates of income tax, NICs and VAT.

Employer allowance

In addition, Rishi Sunak has announced an increase in the NIC Employment Allowance from £3,000 to £4,000 from 6th April 2020. Employers will not have to do anything extra to claim the additional Allowance.

OUR VIEW: The lifting of the NIC threshold will be worth approximately £100 for each employed/self-employed individual. Coupled with the increases in the Employer Allowance this is positive news. It will be interesting to see whether this is the first step to a consolidation of income taxes with as NIC regimes – something which the Office for Tax Simplification raised as a suggestion some time ago.


In order to support the transition to the use of an alternative measure of emissions for new cars registered on or after 20th April 2020, there will be a reduction of 2% in 2020-21 for the company car tax benefit charge based upon the new measure. This will then return to previously planned levels, increasing by 1% in 2021-22 and 2% 2022-23. In 2024-25, the rates will be frozen.

The change to the fuel benefit charge and van benefit charge will increase in line with inflation. Further benefits to company-owned electric vehicles. To further incentivise the uptake of low-emission vehicles, the Government has extended the First Year Allowance (‘FYA’) for low emission vehicles, zero-emission goods vehicles and equipment for gas refuelling stations by a further four years up to April 2025.

There have also been further capital allowances changes which seek to reduce the tax deductions available on higher emission vehicles. A writing down allowance of 18% will now be applicable to cars with emissions of up to 50g/km, with higher polluting cars above 50 g/km receiving the lower ‘special’ rate written down allowance of 6%. From April 2021, companies that allow private use of zero-emission vans to their employees, will apply a nil rate of tax within van benefit charges.

OUR VIEW:  We have previously outlined the significant company car tax benefits associated with the provision of low and zero-emission electric vehicles in our on-line blogs. With the ever-growing range of electric cars and improvements in infrastructure making these vehicles more accessible, the extension in the allowances available for low-emission vehicles will allow businesses to invest in a fleet of company cars and receive direct relief for their purchases.


Lifetime allowance reduced  

Although it had to happen sometime, many tax advisers will be shedding a tear for the near-death of a long-term friend. With the lifetime allowance being slashed from £10m to £1m, a relief that was worth £1m per shareholder or business owner, has now been reduced to £100,000. Although the reduction is not a huge surprise, the attack on so-called ‘forestalling arrangements’ will leave many business owners with a sour taste in their mouths.

It is clear the new £1m allowance will still take account of any ER which has previously been claimed. This means any individual who has already used ER of £1m or more will have no future ER allowance. There will now be business owners who will want to reconsider the benefits of making inter-spouse transfers so as to access a spouse’s ER allowance. Of course, care would need to be taken here to ensure that all the normal ER conditions are met by the recipient spouse. 

Investors’ relief 

It is perhaps surprising the allowance for Investors’ Relief (this is still £10m) has not also been cut and some serial entrepreneurs may be tempted to structure their investments to secure this relief. However, this is a very different relief which does not allow an investor to have any involvement in the running of the company and it too could be reduced very easily. 

OUR VIEW: A change to ER was widely predicted before the Budget with some forecasting the complete abolition of the relief. Whilst a reduction in the lifetime limit to £1 million of gains will mean most taxpayers can continue to claim Entrepreneurs’ Relief on their full proceeds this will clearly have an impact on serial entrepreneurs.

Since each taxpayer has a £1 million lifetime limit, ensuring each spouse holds shares in the family company now makes even more sense in order to double up on the limit. With no cuts to Investor relief, which will still have a £10 million lifetime limit, it may make sense for investors to structure their investments to qualify for this relief. However, this is a very different relief with no involvement allowed in the running of the company.

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