There is little of particular relevance for partners in professional firms in today’s Budget. The Chancellor’s focus was on spending rather than major tax changes. Here is a summary of tax changes that potentially will have the most impact for partners.
Many partners will be impacted by the changes to the Annual Allowance (AA) effective for 2020/21 onwards. The AA is the amount of tax effective pension contributions a partner can make in a tax year. The AA is £40,000 except where tapered down, and it is the taper that is changing.
Any unused AA can be carried forward for use within the next three tax years, and this rule is not changing.
Currently the AA is tapered downwards for earnings between £150,000 and £210,000. At earnings of £210,000, the AA is reduced to £10,000 and falls no further.
From 6 April 2020 the AA taper will operate on earnings between £240,000 and £300,000. So those earning between £150,000 and £240,000 will have a higher AA than they would have previously. Unfortunately the reduced taper for those earning above £300,000 will be set at £4,000 rather than the current £10,000.
View our article on the changes to pensions annual allowance tapering for more information.
The government has decided to restrict Entrepreneurs’ Relief (ER) rather than abolish it.
This may impact partners in firms where goodwill is traded between partners and particularly where partners are paid for a share of goodwill on retirement or a sole partner of the firm.
ER means that the rate of Capital Gains Tax (CGT) on the relevant sale is 10% rather than the normal rate of 20%.
In recent years an individual has had a lifetime restriction to their gains that could benefit from ER of £10 million. From 11 March 2020, the ER lifetime limit is reduced to £1 million.
View our article on the changes to Entrepreneurs’ Relief for more information
View all our Budget 2020 announcements