Now that the dust has settled on the Chancellor’s first budget we take a look at what this means for those of us living in Scotland, also taking into account the effect of the earlier Scottish Budget. Yesterday’s budget was understandably primarily focussed on delivering policies to support the UK in dealing with the current coronavirus outbreak, but there were still a few changes included that could personally affect us all. These announcements were of course, in addition, supported by the Bank of England cutting the base rate by half a percent to 0.25%.
Scottish Income Tax
In the Scottish budget delivered at Holyrood on 6 February there was no change made to Scottish tax rates. However the basic 20% band and intermediate 21% band threshold were increased in line with inflation to protect the lowest and middle income earners. The higher (41%) rate and the additional higher rate (46%) band thresholds remain frozen.
Given that yesterday’s budget did not make any changes to income tax rates in other areas of the UK, the position remains that a Scottish taxpayer earning £50,000 will pay £1,540 more income tax than those south of the border.
Yesterday saw an increase in the National Insurance primary threshold and lower profits limit to £9,500 (from £8,632) from 6 April 2020. This will be welcomed by employees and the self employed respectively as this increases the amount you have to earn before paying National Insurance.
Capital Gains Tax (CGT) – Entrepreneurs Relief
There was significant speculation before yesterday’s budget around this relief which gives a 10% tax rate on CGT realised from the disposal of a qualifying interest in a qualifying business up to a lifetime gains limit of £10 million. Whilst the relief will still remain, the lifetime gains limit has been reduced substantially to £1 million.
- Savers for children will be pleased to see the Junior ISA annual limit increased to £9,000 from £4,368.
- The annual capital gains tax exemption for an individual increases to £12,300 for the next tax year (up from £12,000).
The proposed reduction in the rate of Corporation Tax to 17% will not be proceeding and the rate will remain at 19%.
- The tapered annual allowance has long been a much debated topic particularly for members of the NHS pension scheme. The annual pension allowance of £40,000 is currently reduced or ‘tapered ’for those earning over £110,000 a year. This led to many doctors in the NHS capping their working hours given the loss of pension saving they could encounter for working longer. However from Monday 6 April the income threshold will be increased to £200,000 meaning anyone who earns less than this amount will no longer be affected by the tapered annual allowance. The annual allowance will now only begin to taper for those who have an income above £240,000, (the £200,000 allowance plus the £40,000 you can save into a pension). The Government’s hope is that, with the ongoing coronavirus outbreak, this change will result in doctors being prepared to work longer hours to treat patients.
- For high earners the minimum that the annual allowance can taper down to decreases to £4,000 from £10,000.
- If you have previously stopped or reduced your pension contributions to a pension scheme because of the tapered annual allowance provision it may now be time to reconsider.
Ahead of the budget various rumours circulated that significant changes may be expected to the rules on pension tax relief and inheritance tax. These rumours proved unsubstantiated as no changes to either were mentioned yesterday but the next budget is due not that far away in November…