Fiscal budgets are a landmark event on every financial adviser’s calendar, as they can have big implications for the advice we give to you. Now that we’ve had the chance to comb through the fine print behind the headlines, what key takeaways do we think you ought to know about?
In short – it’s good news. The Chancellor Rishi Sunak has perhaps rightly decided now is not the time for big tax shakeups, so the financial planning implications are relatively minor. In fact, the most important revelation was that some things will be staying the same for longer (more on this below).
As we might have expected, the focus was on continued support as the UK moves towards what is hoped to be the end of the Covid-19 pandemic this year. Homebuyers, businesses, employees and the self-employed are among those who should continue to benefit from these measures, though the Chancellor warned that businesses should prepare for a corporation tax rise – even if this won’t kick in until 2023.
Here are the main measures in summary:
Frozen Reliefs and Allowances: Until 2026, the following allowances and thresholds will be frozen, irrespective of any inflation we might see over the period. These are:
- The personal allowance for income tax (frozen after an increase from £12,500 to £12,570 in 2021/22).
- The basic rate limit for income tax (frozen after an increase from £37,500 to £37,700 in 2021/22. In effect this means the new higher rate earnings threshold for income tax will be £50,227; up from £50,000 in 2020/21).
NB: For child benefit recipients, the change means that some basic rate taxpayers will now be liable for the high-income child benefit tax charge applicable to individuals earning more than £50,000. Previously only higher-rate earners were affected.
- The capital gains tax annual exempt amount (frozen at the current level of £12,300 for individuals, personal representatives and certain trusts, and £6,150 for most trustees).
- The pension lifetime allowance (frozen at the current level of £1,073,100).
- The inheritance tax nil rate band (IHT NRB) and the IHT residence NRB (frozen at £325,00 and £175,000 respectively. Estates worth more than £2m will continue to be subject to tapering of the residence NRB).
While not an outright tax increase, these freezes may still start to squeeze incomes and assets as the years go by. It’s likely that inflation (money losing its buying power over time) will pull more people over the thresholds who might otherwise have been unaffected.
We will therefore look to factor this into your future plans to help keep your financial objectives on track.
Furlough to be extended: The Coronavirus Job Retention Scheme, known as furlough, will continue to be in place until the end of September.
Self-employed furlough (SEISS) also extended: The self-employed equivalent of the furlough scheme is the Self-employed Income Support Scheme (SEISS). The Chancellor has extended this scheme to those newly self-employed, meaning that over 600,000 people can now claim a SEISS grant. The scheme is now open to those who filed their first self-employed tax return in 2019/20 or before.
95% mortgages return: First-time buyers and existing buyers alike will find more 95% mortgages available, thanks to government guarantees to lenders.
Stamp duty holiday extended again: Another extension has been added to the stamp duty land tax holiday, which will now finish at the end of June. After this, there will be a further stamp duty holiday on homes worth £250,000 or less, for another three months. After this, the system will return to normal, with stamp duty starting at £300,001 for first-time buyers and £125,000 for everyone else.
New grant scheme for businesses as they reopen: There is a new £5 billion grant scheme for businesses, called ‘restart grants’, worth up to £18,000 per firm (but just £6,000 for most non-essential businesses). These will be available from April via local authorities.
Business rates holiday extended: The retail, hospitality and leisure sectors will continue to be exempt from business rates until the end of June, with a further two-thirds discount applying for the remaining nine months of the 2021/22 tax year.
Warning of corporation tax rise to come: The 2021 Budget wasn’t all generosity. Recognising that the huge levels of state support would need to be paid for eventually, Rishi Sunak announced that corporation tax would rise from 19% to 25% in April 2023. However, the smallest 1.5 million companies will continue to pay it at 19%.
We hope you found this a helpful primer on how the Budget might affect you in the new tax year and beyond. Feel free to get in touch if you want to speak to us about any of the issues raised here – just send us a message or give us a call on 01484 608095.