An overview of
THE 2021 BUDGET
There were no major shocks in the Chancellor’s Budget. What we did see was confirmation of the key tax rates, bands and allowances for 2021/22 and that many of these will remain frozen until April 2026.
However, the Government is set to announce a series of tax consultations on the 23 March which may begin to reveal their plans to balance the books after the unprecedented spending required to deal with the Covid pandemic.
THE KEY POINTS
No changes to CGT
Lifetime allowance frozen until 2026
Income tax personal allowance and higher rate threshold increased for 2021/22 and then frozen until 2026.
IHT nil rate bands frozen 2026
Lifetime allowance frozen at £1,073,100
There will be no inflationary increases to the lifetime allowance (LTA) - it will remain at its current level until April 2026. A prolonged period of no inflationary increases will mean that more and more clients may face LTA charges. But it's important to remember that the LTA isn’t a ceiling on what can be saved into pensions. There are many good reasons for those potentially impacted to continue saving into their pension, especially if stopping funding means losing out on contributions from their employer.
Pension tax relief
There were no changes to pension tax relief in the Chancellor’s Budget.
Increase to personal allowance and higher rate threshold: There are no changes to income tax rates for 2021/22. The personal allowance and basic rate band have been increased in line with CPI. The new personal allowance will be £12,570 with the basic rate band increasing to £37,700, meaning that the higher rate tax threshold will be £50,270. The personal allowance and higher rate threshold will remain fixed until 2025/26.
Inflationary increases to all tax bands: As announced in the Scottish Budget on 28 January, there will be no changes to the Scottish rates of tax. All the bands will increase in line with CPI as follows;
Starter rate - £12,570 - £14,667
Basic rate - £14,667 - £25,296
Intermediate rate - £25,296 - £43,662
Higher rate - £43,662 - £150,000
No changes: Income tax rates, bands and allowances for Welsh taxpayers remain fully aligned with rUK.
CAPITAL GAINS TAX
No change to CGT
While there was much speculation ahead of the budget on possible changes to CGT, there were no changes announced to CGT rates or the annual exemption. However, the annual exempt amount will remain frozen at £12,300 for individuals (and personal representatives) and to £6,150 for trustees of settlements, until 2025/26. The Government intends to publish further tax consultations on 23 March and we wait to see if CGT changes are amongst them.
IHT nil rate bands frozen
Both the nil rate band and residence nil rate band will remain fixed at £325,000 and £175,000 respectively until April 2026. With the bands frozen for a further five years, this will bring more estates into the IHT net and increase the demand for advice on estate planning. We wait to see if IHT is included in the tax consultations set to be announced on 23 March and, if so, how these may affect wealth transfer.
CORPORATION TAX ON THE RISE
Corporation tax is set to rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits under £250,000 so that they pay less than the main rate.
IR35 CHANGES TO GO AHEAD
The changes to off payroll working, often referred to as IR35, will now come into force from April 2021. This will see large and medium sized private companies becoming responsible for deciding if contractors are effectively ‘employees’. If so, these companies must collect income tax and NICs from the contractor’s fee and pay it over to HMRC.
These new rules were due to be introduced from April 2020 but were delayed due to the COVID-19 pandemic.