As part of our series of posts reviewing the March 2020 Budget, it is important to look at some of the broader measures that may affect you and your family. So in this post we are focusing on the measures outlined in respect of helping your children and grandchildren, and pension contributions.
Helping Children and Grandchildren
Child Trust Funds (CTFs)
Junior ISAs and their precursor CTFs allow tax free savings to be made for children under 18. There is no access to the investments until the child is 18.
CTF accounts will start to mature in September 2020 when the first children reach 18. Without regulatory change the investments would lose their tax advantaged status. CTF and ISA regulations have therefore recently been made which:
- make sure that investments in CTF accounts retain their tax advantaged status post maturity, pending instructions from the account holder
- allow savings transferred from a matured CTF to be disregarded for the annual ISA subscription limit.
Around six million children hold a CTF and approximately 800,000 of these accounts will mature each year from September 2020. A significant proportion of these accounts are thought to be “dormant” – holding just the contributions made by the government. Government contributions are not made to Junior ISAs.
Junior ISA and CTF annual subscription limits
The annual subscription limit for Junior ISAs and CTFs will be increased from £4,368 to £9,000 for 2020/21.
The pensions annual allowance (currently £40,000) is the maximum amount that can be paid into your pension scheme and which attracts income tax relief.
However, for those on higher incomes, the annual allowance is reduced by £1 for every £2 that an individual’s “adjusted income” exceeds £150,000, down to a minimum annual allowance of £10,000. Adjusted income is broadly net income before tax with the addition of any pension contributions. The taper potentially applies to an individual with income before tax, without the addition of the pension contribution, above £110,000. This is known as the “threshold income”.
Adjusted income and threshold income will each be raised by £90,000 for 2020/21. The threshold income will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance. The annual allowance will begin to taper down for individuals who also have an adjusted income above £240,000.
There is also a change to the minimum annual allowance. The minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from 6 April 2020. This reduction will only affect individuals with adjusted income over £300,000.
If you are affected by any of the issues raised in this post, please contact us today.