With less than three weeks to spare before the end of 2019/20, Westminster finally delivered the 2020/21 tax rates.
All of that, however, pales into insignificance somewhat when you consider the people and businesses affected by the coronavirus.
Since the Spring Budget took place on 11 March 2020, billions of pounds have been set aside to help the UK cope with COVID-19.
How the UK Government intends to recoup that level of emergency expenditure – amounting to at least 15% of GDP – remains to be seen. And more emergency measures are certain to follow.
That may be a matter for the Autumn Budget down south to address, assuming the pandemic calms down by then.
For now, here are the personal tax changes for 2020/21.
Taper annual allowance
Even before the outbreak of COVID-19, doctors demanded change to the tapered annual pension allowance.
In 2019/20, the taper reduced the £40,000 annual pension allowance by £1 for every £2 of income above £150,000.
From 6 April 2020, the threshold at which the taper kicks in has been raised to £210,000. The adjusted income threshold also increases, to £240,000.
That, the Chancellor said, will take around 98% of consultants and 96% of GPs out of the taper altogether.
More on this in next month’s blog.
Entrepreneurs’ relief
If you plan to sell your business from next month, you may not be able to get the reduced 10% rate on capital gains tax.
The lifetime limit on qualifying disposals eligible for entrepreneurs’ relief has been lowered from £10 million to £1m.
To be eligible, your business needs to be valued at less than £1m and you must not have exceeded this threshold from any previous sales.
If you have exceeded this cap, or the sale of your business will take you over it, a capital gains tax rate of 20% applies.
Capital gains tax
Back in October 2019, we wrote about three changes to capital gains tax to be aware of 2020/21. In particular, the new 30-day payment window has the potential to catch a lot of people out.
This specifically applies to those of you with second homes or buy-to-let properties.
If you’re planning to sell a property that’s not your main residence from next month, any gain needs to be reported within 30 days of the deal going through. Do not wait until January 2022, when you may be preparing your 2020/21 tax return, to report the gain. It will be too late.
The reporting method is also changing. Instead of reporting the gain through self-assessment, HMRC’s new report and pay capital gains on UK property service will need to be used.
Off-payroll working in the private sector
Westminster has delayed extending the controversial off-payroll working rules to the private sector for 12 months.
This will now take effect from April 2021 instead, despite a review last month that gave it the green light to take effect from next month.
The reform was deferred in response to help businesses and individuals fighting the coronavirus outbreak.
Income tax in Scotland
We already knew the income tax thresholds and rates in Scotland for 2020/21, following February’s Scottish Budget.
The personal allowance, which is still decided by Westminster, remains at £12,500 from next month.
So, the income tax thresholds in Scotland rise in line with inflation and are as follows:
| Income tax bands – 2020/21 | Threshold | Rate |
| Personal allowance | Up to £12,500 | Nil |
| Starter-rate | Over £12,500 to £14,585 | 19% |
| Basic-rate | Over £14,585 to £25,158 | 20% |
| Intermediate-rate | Over £25,158 to £43,430 | 21% |
| Higher-rate* | Over £43,430 to £150,000* | 40% |
| Top-rate* | Above £150,000 | 41% |
*The personal allowance reduces by £1 for every £2 earned over £100,000.
In other taxes to affect your income, the annual capital gains tax exemption for individuals rises to £12,300.
For trustees of settlements, the annual exemption will increase from £6,000 to £6,150.
Thomas Barrie offers a comprehensive personal tax planning service. For more details on how these personal tax changes affect you, email us at contact@thomasbarrie.co.uk or call us on 0141 221 257.