Today the chancellor of the exchequer Rishi Sunak delivered his first Budget speech.
The speech was centred around one particular phrase: "We’ve got it done". The speech spent a lot of time talking about the coronavirus and the measures the government would take to help individuals, businesses and the economy.
There was little in terms of tax changes, but perhaps increases in taxes for say higher earners were shelved due to the current position with the coronavirus.
It was rumoured that there would be changes to pension tax relief, for example reducing higher or additional rate tax relief, and restricting it to just the basic rate. These changes did not materialise and
instead they changed the amount the annual allowance can be tapered down to from its lowest amount from £10,000 to £4,000 from April 2020.
This reduction will only affect individuals with total income (including pension accrual) over £300,000. This will effectively mean that for these high earners it will now be barely worth investing into a pension.
The amount they will be able to accrue up to retirement is unlikely to meet their costs of living following retirement. These individuals would need to look at other options.
The larger expected change given is that of the reduction in the entrepreneurs’ relief lifetime limit.
From 11 March 2020,the lifetime limit on gains eligible for entrepreneurs’ relief will be reduced from £10m to £1m. The lifetime limit reduces the tax on capital gains from 20 per cent to 10 per cent on qualifying disposals.
Following a government review they found that it has done little to incentivise entrepreneurial activity and that most of the benefit accrues to a small number of very affluent taxpayers. They believe that this will help ensure that the tax system is fair and not weighted to individuals that can substantially gain from applying the previous £10m limits.
From today’s speech the Chancellor mentioned that over 80 per cent of those using the tax relief would be unaffected.
I agree with the Chancellors view, based on current capital gains rates, that providing a £1m tax break on a capital gain of £10m was quite generous. Today’s reduction will further equalise the position the position whilst continuing to give an incentive to the entrepreneurs of the UK.
A small point but I believe that this change should have been made at the start of the next tax year, given that we are so close, to keep things simple.
Rajiv Vadgama is a partner at accountancy firm RSM