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The Chancellor Sajid Javid has announced 11th March as the date of the new budget for 2020. Following a large Conservative general election victory in December 2019, what can people expect this to mean for their taxes? Moreover, how does this affect your financial plan?
Here at Suttons IFA, our Sale-based financial advisers will be sharing 6 important areas of tax which might be affected by policy changes in 2020. Please do discuss these with a qualified financial adviser to ensure your financial plan is fully prepared for possible changes.
We hope you find this content useful, and invite you to get in touch to book a free consultation (no-commitment) regarding your own financial plan. Reach us on:
T: 0161 969 1703
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Tax on property
One tax change we can be fairly confident of from April 2020 is the government’s plan to change the rules around principal private residence (PPR). In 2019-20, this is a valuable relief from capital gains tax (CGT) when you sell your primary home.
At the time of writing, the last 18 months of your home ownership is regarded as qualifying occupation for the purposes of PPR. After the 5th of April 2020, however, this period will be reduced to the last nine months of ownership.
In practical terms, this means that from 6th of April 2020, if you buy a new home before selling your old one, you will need to ensure it sells within nine months to avoid a capital gain tax levy.
Much was made of the Conservative’s unofficial idea in 2019 to raise the Higher Rate of income tax to £80,000. However, this proposition was eventually ditched in the official general election campaign leading up to the 12th of December. Given that the policy was not included in the Conservative manifesto and that it could cost the Treasury as much as £8bn to implement, it seems unlikely that this proposed overhaul to income tax will materialise in 2020.
However, the fact that income tax bands are not likely to change in 2020 should not lead to inaction. Those in the Higher Rate (i.e. earning over £50,000) could still save on their tax bill by consulting a financial adviser about their options, particularly via pension contributions.
Business owners take note on National Insurance. From 6th of April 2020, only businesses with a NIC bill of £100,000 or less (i.e. small businesses) will be able to claim the Employment Allowance (which shaves up to £3,000 per year from your Class 1 NI bill).
For individuals, currently, earnings above £8,632 must pay NICs. The Prime Minister has announced that in 2020-21 this threshold will rise to £9,500. Depending on which research you rely on, this could put £85-£100 back into your pocket this coming tax year.
In the current 2019-20 tax year, each person has a tax-free dividend allowance of £2,000. Once you exceed this threshold, the tax rates are 7.5% for people on the Basic Rate and 32.5% for those on the Higher Rate.
At present, there appear to be no major changes to this system due in 2020. However, if you are married or in a civil partnership, it’s important to ensure you make maximum use of your transferable allowances. If your spouse or partner has not used up their £2,000 allowance and you have, consider transferring some of these assets over.
Capital gains tax
If you are letting your property (or plan to do so), then bear the following in mind. At the time of writing, provided that at some point during ownership your property qualified for PPR relief, then you should be eligible for lettings relief. When you sell your property, the tax authorities look at the whole period you owned the property to make a time apportionment calculation. They then offer relief for the letting period, limited either to £40,000 or to that part of the gain for the periods it was your main residence.
Lettings relief will change as of 6th of April 2020, however. From this point, it will only apply if you (the owner) share occupancy with a lodger or tenant. So, if you are letting your property, do not also live there and plan to sell soon, it might be worth discussing your options with an experienced financial adviser.
An important inheritance tax (IHT) threshold is set to rise from April 2020. Presently, in 2019-20, each person is entitled to pass on £325,000 tax-free to their beneficiaries, and an additional £150,000 if you give your home to your direct descendants.
Married couples and civil partners can combine these allowances to effectively pass on up to £950,000, free of IHT. However, from 2020-21 the aforementioned threshold of £150,000 will rise to £175,000; allowing married couples to pass on up to £1m free from IHT.
If you would like to know more about financial planning or wish to discuss your own financial goals and strategy with us, then we’d be delighted to hear from you.
Please get in touch using the details below, to arrange a free, no-commitment financial consultation with a member of our team:
T: 0161 969 1703