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Budget 2020 predictions: personal tax

Our experts give their predictions for what the Chancellor might do and suggestions for what he should and shouldn’t do during the Budget announcement on 11 March.

For more information about our coverage on the day and the publications we produce, visit our Budget 2020 topic page.

Lifetime ISAs

The Lifetime ISA (LISA) (a product of George Osborne’s time as Chancellor of the Exchequer) appears to have been a “damp squib” with uptake amongst taxpayers appearing to be quite limited. This would appear to be as a result of the relatively low amounts, which can be contributed to a LISA each year (a maximum personal contribution of £4,000 per annum plus a 25% Government bonus).

As such, the Government should increase the contributions limits significantly – say at least to £10,000 per annum (including the 25% Government bonus); or simply remove the scheme totally.

Pensions tax relief

The existing pensions taper rules are not working. This can be seen by the problems that have arisen in the NHS, for example, where consultants are refusing additional shifts to avoid exceeding punitive earnings’ thresholds.

As such, the Government needs to remove these rules and allow all employees/self-employed individuals to make the same absolute maximum level of contributions each year (we would suggest retaining the existing £40,000 per annum maximum contributions limit in this regard).

If necessary from a cost perspective, it may be appropriate for the Government to cease allowing this relief at someone’s marginal tax rate (which provides more tax relief for 40% and 45% taxpayers compared to those on the basic rate band) and instead, the Government could only provide tax relief at a fixed rate (say 25% or 30%) for all taxpayers. This would help restrict the absolute cost of the pensions taper relief removal and could be justified on the grounds of “fairness” – i.e. because an average worker and an executive are getting proportionally exactly the same amount of pensions tax relief.

The existing pensions taper rules are not working. This can be seen by the problems that have arisen in the NHS, for example, where consultants are refusing additional shifts to avoid exceeding punitive earnings’ thresholds. Robert Salter, Senior Advisor

The other option (and this could be in addition to any changes to the traditional tax-relief on the way in option mentioned above) is to only provide tax relief on pensions on “the way out” (i.e. when you take your annuity from the pension fund). This would mean that you don’t get any tax relief “today” (when you put your contributions in), but would not (at least that would be the promise), pay an income tax in the future, when you take out the pension (e.g. as an annuity).

Again, the advantage of such an arrangement is that it means the Government isn’t losing taxes today – it pushes the issue of the tax relief many years down the line.

The existing pensions taper rules are not working, which can be seen by the problems that have arisen in the NHS

Personal tax allowances and non-UK tax residents

People who are presently non-resident in the UK continue to be eligible for the UK personal tax allowance if they have UK or EU (or EEA) nationality. This means, for example, that many such individuals can avoid a UK tax liability on UK source income (e.g. Government pensions or UK letting income). As the beneficiary of such tax breaks are typically relatively affluent, it would again be easy to justify the removal of the personal tax allowance from non-resident individuals on the basis of “fairness”.

Child benefit

The present rules for child benefit in effect reduce child benefit for families where one parent earns over £50,000 per annum (and remove the relief totally, when one parent earns over £60,000 per annum). These rules punish people who are not wealthy and discriminate against families with one income earner for example, if that individual earns over £50,000 per annum, compared to dual income households, which may have a higher cumulative income. In addition, it results in many taxpayers who would not otherwise be subject to Self Assessment tax filings, needing to file an annual tax declaration.

Whilst the Government should ideally revisit this whole issue and “start from scratch”, at the very least, it would be equitable to significantly increase the income threshold under which the High Income Child Benefit Tax Charge starts. The £50,000 earnings threshold has not changed since the rules were introduced in 2013 and should, at the very least be increased to £70,000 or £75,000 per household.

For more information, please contact Robert Salter.

Inheritance tax

Robert Pullen, a partner at Blick Rothenberg said: “The focus appears to be on capital taxes – with Inheritance Tax, Stamp Duty Land Tax, Capital Gains Tax, and a new Mansion Tax being discussed. The Government is clearly looking to raise revenue whilst making a statement to lock in the voters outside the South East who supported the Conservatives in the last election. Expect policies that wouldn’t usually make it into a Conservative Budget.”

He added: “A recent policy paper from the Office of Tax Simplification has suggested wide-sweeping reforms to the Inheritance Tax rules. Whilst it would be unusual for such dramatic changes to be announced in a Budget without consultation, it is possible the Government could be looking at this (the last significant reforms being in 1984).”

For more information, please contact Robert Pullen.

For press enquiries, please get in touch with David Barzilay.