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Budget 2020: Key Changes

Rishi Sunak, the Chancellor of the Exchequer appointed on 13th February following the resignation of his predecessor Sajid Javid, delivered his first Budget on 11th March. A significant portion of the changes announced were to try and combat the expected effect of Coronavirus on the UK economy, including refunding Statutory Sick Pay for up to 14 days per employee for businesses with under 250 employees.

Tax changes announced in the Budget included: increasing the income threshold for pension tax relief, increasing the national insurance primary threshold from £8,632 to £9,500, and increasing the annual exempt allowance for capital gains to £12,300.

To relief in many quarters, Entrepreneur’s Relief (ER) was not entirely abolished in the Budget as had been rumoured. Instead, the lifetime limit for gains qualifying for ER was reduced to £1 million, effective immediately. Any disposals qualifying for ER prior to March 11 will remain subject to the previous limit on lifetime gains of £10m. It should be noted that Investors’ Relief, which functions similarly to ER but does not require that the shareholder be an employee, retains its £10m lifetime cap on gains.

This change to ER will be of concern to those who have Enterprise Management Incentive (EMI) option plans in place, as EMI option gains can qualify for ER. The impact this will have on the use of EMI schemes is yet to be seen; more detailed analysis of this shift to the landscape will be published in due course. Our initial thoughts are that the change to ER will encourage the use of alternative employee ownership arrangements such as Employee Ownership Trusts.

We welcome the announcement that a review of EMI will be undertaken and hope that simplifications to the system will be made.

We have updated our handy guide Share Schemes at a Glance with the changes announced so far; to request a copy, please click here.

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