Rachael Griffin, tax and financial planning expert at Quilter:
Social care and inheritance tax
“The new Chancellor, just weeks into the job, is trying to be the popular kid on the block with a budget full of pleasant getaways – fixing potholes, freezing taxes on alcohol and abolishing the tampon tax.
“In his effort to stay in the good books the Chancellor dodged some of the biggest issues despite his huge emphasis on “getting it done”. Social care received a cursory mention at the end of the speech with the government committing to tackling the issue with cross-party support but leaving out any timelines or details.
“Despite the clear problems with social care, this seemingly never-ending saga continues on with no end in sight and no concrete solutions presented by the government on how they plan to fix it. This ultimately means that family and friends are left to pick up the pieces and millions of unpaid carers are propping up the system. Many have to forgo their own financial and personal wellbeing in order to do just that. This is a crisis that is reverberating throughout many corners of the economy.
“A financial adviser can help, in particular one that holds a qualification in long term care and later life planning as they will be used to negotiating the complexities.
“Sunak is required to reset the welfare cap, which will come into play for spending for the 2024-25 tax year and has set that cap at £137.2bn and he has flexibility to pay 3% more than that. This means a jump to £141.3bn in the 2024-25 tax tear from £119.9bn in the 2019-20 tax year.
“The cap includes how much is spent on the carer’s allowance, the attendance allowance, pension credits among other things.
“How these allowances and the threshold interact with changes with social care is anyone’s guess and the rise in spending is inevitable given we have an aging population.
“Similarly the Chancellor dodged the intricate maze of complication that is inheritance tax with no mention of any simplification or changes. The review of inheritance tax conducted by the Office of Tax Simplification was commanded by Phillip Hammond and it may be the new Chancellor doesn’t have any inclination to make changes.
“Although with the Chancellor’s current spending regime he will have to find money from somewhere and Inheritance Tax or Pension Tax Relief may be the source of the magical money tree that was used to fund this budget.”
Junior ISAs and Child Trust Funds
“All young people should be able to start their adult lives with a healthy pot of savings to invest in their future. In a budget which was very much focused on the here and now of responding to the Coronavirus, it is pleasing that Sunak has committed to providing a helpful boost for a new generation of savers by more than doubling the annual subscription limit for Junior ISAs and Child Trust Funds to £9,000.
“Although this will be music to the ears of many Junior ISA holders who may be currently hitting their subscription limits, it may not be properly considered by many Child Trust Fund holders. Since they were scrapped in 2012, many parents will have forgotten that they even opened up an account and will not be aware of this generous increase in the subscription limit. It would be wise for the government to raise awareness of the funds and the increased subscription limit to ensure that parents are making the most of the tax-efficient savings on offer for their children.
“The increased subscription limit will build on the government’s recent decision to allow Junior ISA holders to switch to adult ISAs at maturity and should help considerably in encouraging long-term savings habits amongst young adults.”
Non-UK resident Stamp Duty Land Tax (SDLT) surcharge
"As promised during the Tory campaign, a stamp duty surcharge for non-UK resident buyers has been brought in during the 2020 budget. However, Sunak has not quite gone as far at the Tory manifesto pledge and has opted for a 2% rather than 3% charge.
"This represents a crowd pleasing policy which will win over people worried that foreign house buyers are hoovering up UK property as an investment, only to leave it empty, which further exacerbates the housing crisis gripping the nation.
"While this surcharge introduction is welcomed, increasing the UK’s housing stock will have a more important impact for domestic buyers. Planning reforms, set to be announced tomorrow, may reveal additional new measures which aim to stimulate the construction of more housing."
Changes to Entrepreneurs’ relief
"Rumours swirled for months prior to the Budget that Entrepreneurs’ Relief (ER) was in line for significant reform or even abolition and they proved to be correct. While the relief has not been scrapped altogether it has been significantly cut. The rules allow business owners of two years or over to pay less capital gains tax when they sell (10 per cent rather than 20 per cent), but this relief will now be capped at £1m for any one person opposed to the previous £10m cap.
"By the Government’s own admission it has chosen to reform this relief following evidence that the rule has done little to incentivise entrepreneurial activity and in fact mainly benefitted a small number of very affluent taxpayers. However, Sunak chose not to go the whole hog and scrap the relief altogether in a bid to continue to encourage genuine entrepreneurs who do rely on it. It is improbable that these changes are going to have any material impact on entrepreneurialism in the UK and may give the Treasury more money to play with going forward"
Jon Greer, head of retirement policy at Quilter:
National Living Wage
“The future increases in the living wage and its proposed extension to those from age 21 (targeted from 2024) could be used as an opportunity to coincide with increases in minimum pension contributions under automatic enrolment. The existing auto-enrolment rules have a lower and upper limit, creating a ‘qualifying earnings band’. For the 2019/20 tax year this is between £6,136 and £50,000 a year. It means that those on very modest incomes might only be making a pension contribution based on a small portion of their overall salary.
“Previous reviews have recommended abolishing the lower limit on the earnings band. This would result in higher pension savings levels thanks to 100% of someone’s earnings up to £50,000 being used as the basis to calculate pension contributions. For some lower earners this could double their contribution if the lower earnings limit is abolished.
“When the living wage goes up it feels like an opportune time to coincide with the removal of the lower limit on qualifying earnings. Because the lowest paid workers will be getting a pay rise, thanks to the increase in the living wage, a small increase in the deduction made for their pension may not be as noticeable.
“Recent data shows that auto-enrolment opt-out rates have remained relatively low. However, government has remained reluctant to tinker with the policy in order to raise contribution levels and extend participation. That is understandable as they are nervous about causing disruption to a policy which has so far been broadly successful. But we would urge them to consider this tweak to the system. It would be a shame to miss the opportunity to increase retirement savings at the same time as a planned national pay rise.”
Tapered annual allowance
The “threshold income” and “adjusted income” for the tapered annual allowance will rise to £200,000 and £240,000 respectively.
“This is a much more dramatic shift in the tapered annual allowance than was anticipated. Only those with the very highest earnings will now be affected by the annual allowance taper, which will be a welcome change for thousands of people that have been grappling with this complex tax rule.
“But there is a sting in the tail. The taper will shrink the minimum annual allowance down from £10,000 to just £4,000 a year, shredding a further £6,000 per annum from the annual allowance for those currently at the sharp end of the existing taper rules.
“The new system will see the annual allowance gradually eroded for everyone with earnings over £240,000, falling to just £4,000 for anyone with earnings of £312,000 or more. For example, someone on a salary of £400,000 a year will be able to contribute just 1% into a pension with the incentive of tax relief. That said, it will be a significant tax saving for many senior consultants who were facing a difficult choice of taking on additional work and incurring huge tax bills. The ultimate tax saving for some could be six figures.
“Questions have to be asked about the original policy design behind the tapered annual allowance. It was ill-conceived from the outset and now it is being overhauled after just a few years, with the government giving up a big chunk of expected tax revenue in order to partially unwind some of the policy flaws.”
Graham Crossley, head of development in the dental and medical division at Quilter Financial Advisers:
Tapered annual allowance
“Doctors will welcome this change and it will certainly alleviate many of the pension worries experienced by senior clinicians in recent years. But it is far from a perfect fix and there will still be many NHS staff that face complex pension tax problems.
“The methodology for calculating the annual allowance for defined benefits schemes means that a number of doctors will still breach the normal £40,000 annual allowance, and many of those affected by the tapered allowance prior to today’s Budget have already maximised their carry-forward allowance from previous years. That means that although the taper has been dramatically overhauled, the after-effects will still be felt by NHS staff in the 2020/21 tax year.
“Despite today’s welcome announcements, NHS staff would still benefit from further measures to rectify anomalies in the system. Doctors taking on extra responsibilities will still experience a pay spike that could drag them over the annual allowance limit for pension benefits they may never receive. That means they will confront the prospect of opting out of the NHS scheme to avoid the tax charge, despite the fact they may later wish to opt back in. The same applies to recipients of national clinical excellence awards, who may find that an additional pay reward for exceptional service to the NHS is penalised with an additional tax bill.”
Ian Browne, pensions expert at Quilter:
Pension tax administration
“This is a long overdue consultation to resolve a serious anomaly in the design of the UK’s savings system. The Conservative Party 2019 Election Manifesto pledged to address this and we urge the government to move swiftly.
“Individuals earning less than the £12,500 personal allowance threshold for income tax are eligible for 20% tax relief on contributions but only receive this if they are in ‘relief-at-source’ pensions. If their scheme operates on a net pay basis then they miss out on a crucial top-up to their pension contributions.
“Workers most likely to be affected are those with annual earning between the £10,000 auto-enrolment earnings trigger and the £12,500 personal allowance. Their employer will automatically put them into a pension but they will be missing out on tax relief if their scheme is a net-pay arrangement.
“This anomaly still hasn’t been properly addressed, despite the fact that auto-enrolment has been in force since 2013. And in fact it has been exacerbated during that time as the personal allowance has increased. Sadly, it means that while lower paid workers have benefitted from lower taxation, their pensions have suffered. The taxman has given to them with one hand, but taken away with the other.
“More than a million workers are affected by this gap in the savings system, with HMRC figures suggesting 1.3 million workers earning below the personal allowance made a pension contribution in the 2016-17 tax year using net pay arrangements. And the issue is disproportionately damaging for women’s finances. HMRC estimates that 75% of affected workers are female.
“It is inevitable that the pensions saving net will be porous in places, but to allow low paid workers to slip through the net in their millions is unacceptable. The government must urgently address this failure and we hope they will rapidly escalate the consultation process in order to resolve the issue properly. We cannot expect to build a financially inclusive society if the lowest earners are failed by auto-enrolment, the government’s flagship long-term savings policy.”
Sacha Chorley, portfolio manager at Quilter Investors:
Budget impact on UK economy
“With coronavirus taking effect around the world, it is understandable the new chancellor chose to focus immediate spending efforts on helping small businesses, and ultimately the UK economy through the crisis. Economic growth has been revised downwards without the virus being taken into account, showing that despite the repeated claims of getting things done, the Conservative party face a tricky task of navigating the economy safely through this new world, post-Brexit, order.
“Ultimately, the government has done what it can to ease fears of the impact the virus will have, and time will tell if any of it will work. The cancellation of business rates for small businesses, coupled with increases to the living wage, is a powerful combination that might help reverse some of the difficulties the retail sector faced over the past two years.
“Furthermore, fiscal rules have not been relaxed just yet, but Rishi Sunak set the ball rolling that the government’s spending rules will change as they seek to level up the nation. What this does mean is infrastructure is going to get a large injection of cash, and is an area to watch with interest. We are seeing the largest increase in research and development initiatives and a surge in net public investment, meaning public projects will need to be built. Infrastructure investments stand to benefit from the uplift in public spending and as such represent a good medium to long-term holding for investors.
“Co-ordinated with the Bank of England’s interest rate policy on the same day, we are likely to see borrowing increase sharply during this parliament. This is a significant change in policy and the coordination with the BoE suggests order is being restored to the corridors of power. This bodes well for the upcoming European Union negotiations on the terms of post-Brexit life, where solid and rational policy decisions will be required to generate the best economic outcome from the negotiations.
“With rates at historic lows, and primed to go further, the government is betting this investment will help stave off the effects of the coronavirus and boost the economy in the long-term. With markets still focused on the destruction to supply chains left by the coronavirus, investors need to remain patient before much of this is seen in their returns.”