If you are retired, find out about the Budget 2020 changes and how they affect your finances - good, bad, or otherwise
Any changes to the Budget will impinge on your life in one way or another.
The latest Budget was a pivotal one that was held in unusual circumstances.
This note covers the main changes relevant to the in-retirement sector of society. According to the Department for Work and Pensions (DWP), the retirement sector represents 12.6 million people.
From 6 April, the state pension will rise by 3.9%, or over £6 a week.
This means the rate for the new state pension will increase from £168.60 to £175.20 a week, or to £9,110 a year.
The increase is part of the triple-lock system, which was introduced in 2012/13. It guarantees the state pension will increase yearly by inflation, by average earnings, or by 2.5%, whichever is highest.
In September 2019 the rate of inflation was 1.7%, so the state pension will rise by the increase in average earnings, which was 3.9%.
Most pensioners get the older basic state pension, which is going up by 3.9%, from £129.20 to £134.25 per week. This equals an extra £260 a year. They may also get a Pension Credit top-up.
People who receive the basic state pension may get the earnings-related additional state pension. In 2020/21, the additional state pension will increase by 1.7%, the inflation rate for September.
If you want to know what your entitlement is, you can find out here.
From 1 December 2020, the Chancellor is abolishing the 20% VAT on digital books and e-books, which had been dubbed the ‘reading tax’. There is already no VAT on printed books. He said: “In time for Christmas, books, newspapers, magazines, and academic journals will have no VAT charge.”
Who is reading?
Out of book-reading adults, 34% state that they are ‘heavy readers’. This group are 26% more likely than the average reader to be aged 65 or over. ‘Heavy readers’ are those who have read 10 or more books in the past year.
Heavy readers spend on average £202.15 a year on physical books, just over 3 times more than the average physical book shopper (£60.98).
Reading via e-books is prominent amongst the heavy readers, but lags behind paperbacks and hardbacks. Three quarters of heavy readers read paperbacks, 53% read hardbacks, and 44% read e-books.
The Publishers' Association estimated that universities, libraries, and the NHS will save up to £55m a year as a result of the abolishment of the ‘reading tax’.
The Association said: "We are delighted the government has decided to zero-rate VAT on digital books and journals. It's fantastic that the Chancellor has acknowledged the value of reading.
The decision to axe the reading tax will end the illogical and unfair tax on those who need or prefer to read digitally and should contribute to an increase in literacy in the UK."
Alcohol duty on beer, spirits, wine, and cider will stay the same for the 2020-21 tax year. This tax is included in the price you pay for alcoholic drinks. The amount you pay varies depending on the type and strength of the drink.
The Junior ISA (JISA) subscription limit will increase by £4,632 from £4,368 to £9,000 – a significant uplift.
JISAs were introduced in November 2011 and replaced Child Trust Funds. Any child owning a Child Trust Fund (CTF) is not eligible to open a JISA unless they first transfer the CTF funds to a JISA and close the CTF.
The JISA and the CTF are both tax-free savings accounts for under-18s. Money saved in one of these accounts is locked away until the child's 18th birthday, when it converts into a standard ISA. At this point, the child owns the money and can spend it on what they want.
The Budget policy paper notes: "By saving towards their future, families can give children a significant financial asset when they reach adulthood – helping them into further education, training or work."
If £9,000 is invested every year from birth, the JISA could be worth about £265,000 when the child turns 18, assuming a 5% annual return, which is by no means guaranteed.
Grandparents who have the ability to financially support their grandchildren now have increased potential. The transfer of wealth would qualify as a Potentially Exempt Transfer (PET) for inheritance tax planning, unless covered by one of the gifting exemptions.
Capital Gains Tax
The rate of Consumer Prices Index to September 2019 was 1.7%. This had the effect of increasing the annual exempt amount for the year 2020 to 2021 to £12,300 for individuals and personal representatives.
This will also have had the effect of increasing the annual exempt amount for trustees of most settlements to £6,150.
The annual Capital Gains Tax (CGT) allowance can be useful for generating tax-efficient ‘income’ in retirement.
Inheritance Tax (IHT)
In April 2017, the government introduced a new Residence Nil Rate Band (RNRB). This helps people to pass on property to their direct descendants free from inheritance tax.
Initially, the RNRB was set at £100,000 and has risen in £25,000 annual increments to reach £175,000 in 2020/21.
When added to the Inheritance Tax (IHT) threshold of £325,000, it will allow each eligible individual to potentially pass on £500,000 in 2020/21 with no inheritance tax payable - or £1,000,000 per couple (married or civil partners).
Specific terms apply and anyone considering this should seek expert advice before taking any action.
Local councils will be offered £2.5bn of funding to fix 50 million potholes over the next five years.
Reporting any potholes you come across is important as it will help you get compensation for damages and will alert the council to roads that need repairing.
To report a pothole, find out which council maintains the road by entering the road name or postcode on the Directgov website. If you are on a motorway or A-road, you can contact the Highways Agency. If you are a cyclist, you can use Fill That Hole, set up by Cycling UK, to report a hazard. If you have had to call the emergency services or a recovery team, make sure that they are aware of the pothole.
The Plug-in Car Grant, which gives you a discount on electric vehicles, will be extended to the 2022-23 tax year. This grant is paid to dealerships in order to reduce the prices of their vehicles. The maximum grant available for cars is £3,500.
The Budget also included measures to build more electric charging points. Over the next five years, £500m will be spent on expanding the nation’s charging network, the intention being that no driver will be more than 30 miles (48.28km) from a rapid charging station.
Fuel duty has been frozen for the tenth year in a row, despite speculation it would rise.
An extra bonus from 30 March 2020; the MOT on cars, light vans, and motorcycles can be extended for six months.
The Chancellor announced a £5bn fund to bring gigabit-capable broadband to 95% of the country in the next five years. This broadband is 40 times faster than standard superfast broadband, but it is currently only available in limited areas. The government will fund the infrastructure broadband providers need to roll it out.
£510m was announced for expanding 4G coverage. The plan is to bring 4G to 95% of the UK’s landmass by 2025, including rural areas that have a poor signal.
Overall, there was little in the latest 2020 Budget aimed at the retirement sector. Having said that, there are a host of interesting tweaks that should make life simpler, faster, cheaper, and more convenient.
If you would like help or advice on any of these topics, please contact Capital today and one of our expert team will be happy to help.