Budget 2020 – rates and allowances

The Chancellor, Rishi Sunak, presented his first Budget on 11 March 2020, confirming the rates and allowances applying for the 2020/21 tax year. The following key rates and allowances were announced.

Full details of the rates and allowances applying for 2020/21 are available on the Gov.uk website.

Income tax

As previously announced, the personal allowance remains at £12,500 for 2020/21. It is reduced by £1 for every £2 by which income exceeds £100,000. This means that if your income is more that £125,000 for 2020/21, you will not receive a personal allowance.

Income tax rates and allowances are unchanged too. The basic rate remains at 20%, the higher rate at 40% and the additional rate at 45%. The basic rate band is also unchanged at £37,500, meaning that the point at which higher rate tax becomes payable remains at £50,000. Tax is payable at the additional rate on income over £150,000.

The Scottish and Welsh rates of income tax apply to the non-savings, non-dividend income of Scottish and Welsh taxpayers.

Dividends

The dividend allowance remains at £2,000 for 2020/21. Dividends, which are treated as the top slice of income, are taxed at 7.5% to the extent that they fall within the basic rate band, 32.5% to the extent that they fall in the higher rate band and at 38.1% to the extent that they fall in the additional rate band.

Savings

Basic rate taxpayers continue to benefit from a savings allowance of £1,000 for 2020/21, while higher rate taxpayers can enjoy a savings allowance of £500. There is no savings allowance for additional rate taxpayers.

The starting savings rate of 0% applies to savings in the savings starting rate band of £5,000, but remember this is reduced by taxable non-savings income.

Corporation tax

The rate of corporation tax was due to fall to 17% for the financial year 2020. However, as previously announced, it will remain at 19%. It will stay at 19% for the financial year 2021 too.

Capital gains tax

The capital gains tax annual exempt amount is increased to £12,300 for 2020/21 for individuals and personal representatives, and to £6,150 for trustees.

Capital gains tax rates remain at 10% where income and gains fall in the basic rate band and at 20% thereafter. Higher rates of 18% and 28% apply to residential property gains.