2020 Budget Announcement For Property Investors

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Simon Misiewicz

11th March 2020

Key highlights from the 2020 budget announcement 

On 11th March 2020 the Chancellor of the Exchequer, Rishi Sunak MP, delivered the budget 2020. Here are the key points to the 2020 budget property tax considerations

  • The tax threshold for National Insurance Contributions will rise from £8,632 to £9,500. From April 2020
  • Employers’ allowance is set to increase from £3,000 to £4,000. This means that the employer’s national insurance is only payable once the liability exceeds £4,000
  • Entrepreneurs’ Relief will be retained, but lifetime allowance will be reduced from £10m to £1m
  • Stamp duty surcharge for foreign buyers of UK properties to be levied at 2% from April 2021
  • Capital gains tax annual allowance increased from £12,000 to £12,300 from 6th April 2020
  • Bank of England Interest rates reduced from 0.75% to 0.25%
  • Corporation tax remains at 19%

 

Corporation Tax Rates Remains at 19%

Much was discussed and promised that the corporation tax rate would be dropped to 17% from April 2020. Nothing was mentioned in the 2020 budget announcement despite Boris Johnson promising that the drop in rate would occur if he was voted into power.

The corporation tax rate remains at 19% throughout 2020.

Capital Gains Tax Rates and Capital Gains Tax Allowances

The Capital Gains Tax annual allowance will be increased from £12,000 to £12,300 from 6th April 2020.

We must remember that we saw the government demand 18% capital gains tax rate for basic rate taxpayers instead of 10% for other types of disposals. We also saw high rate taxpayers asked to pay 28% for residential property disposals instead of 20%

Capital Gains Tax Rates

A couple is allowed to swap assets between them without capital gains tax implications. This means that a couple finally disposing of an asset would benefit from two lots of annual allowances being £24,600

You may be interested to know ways of how to reduce Capital Gains Tax for property disposals.

 

National Insurance Costs – For Employees

Property investors and property developers that use a limited company can now pay themselves £9,500 without paying and national insurance. Nor will the directors of limited companies pay any income tax on this amount.

If you are paid over this amount you will pay 12% until you become a high rate tax payer. Once you hit this higher tax band your employee’s national insurance tax rate is just 2%

This means you can pay yourself £791.67 without paying any income tax or national insurance

However, as an owner-director of a company we need to take into account…

 

National Insurance Costs – For Employers

National insurance is to be paid by employers once the employee is paid in excess of £169 per week or £8,788 per annum at a rate of 13.8%

There is another benefit of the 2020 budget announcement. The employer’s allowance has increased from £3,000 to £4,000 from 6th April 2020. This means that any employer’s liability to national insurance will be ignored below the £4,000.

Provided you meet the employer’s allowance criteria as set out by HMRC. You cannot claim if:

  • you’re the director and the only employee paid above the Secondary Threshold
  • you employ someone for personal, household or domestic work (like a nanny or gardener) – unless they’re a care or support worker
  • you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity
  • you’re a service company working under ‘IR35 rules’ and your only income is the earnings of the intermediary (such as your personal service company, limited company or partnership)

 

How should you pay yourself out of a limited company?

Given these changes from the 2020 budget announcement, I still would say that you are best to pay yourself up to the secondary level for employers if you are a one-man-band. This means you ought to change your payroll settings from 6th April 2020 to pay yourself

Optimise Accountants - Tax free money from a limited company

All the above amounts will be free from income tax and national insurance provided that you have no other form of income.

You may want to know how to extract as much money out of a limited company without paying too much tax. Be sure to read that article.

 

Stamp Duty Land tax 2% surcharge for foreign persons buying a residential property.

It was shown, in the 2020 budget announcement,  that a new surcharge would be introduced. The surcharge of 2% will be applied for property investments made by a foreign person. The surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

Stamp Duty Land tax 2% foreign tax surcharge

Time will tell how this will be applied for UK limited companies where there are foreign shareholders.

This means that a foreign person buying a residential home at £275,000 will now pay 8% on the banded rate of over £250,000.

Optimise_Accountants_Stamp_Duty_Land_Tax

There are many ways in which you can reduce Stamp Duty Land Tax. Be sure to read that article for more details.

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