The Chancellor of The Exchequer, Rishi Sunak, has delivered his second UK Budget.
There were no major surprises in the Chancellor’s 2021 Budget with many of his announcements extending further Covid-19 support to individuals and businesses. 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.
The chancellor has made clear he believes the UK will take “a long time to recover” but he will do “whatever it takes”. Recovery will be ‘swifter and more sustained’ than thought – unemployment may peak at 6.5% in 2022, lower than the 11.9% predicted. The amount borrowed is comparable only with that during the two world wars, he says; It will be the work of many governments, over many decades, to pay back. The UK is to borrow a peacetime record of £355bn this year and borrowing will total £234bn in 2021-22.
As we emerge from the COVID-19 pandemic into a period of economic recovery Mr Sunak confirmed:
- The furlough scheme – which pays 80% of employees’ wages – will be extended until the end of September
- A further £1.6 billion in funding will be provided to continue rollout of Coronavirus vaccines and improve future preparedness
- 600,000 more self-employed people will be eligible for help as access to grants is widened
- £20 uplift in Universal Credit to be extended for another six months
- The 5% reduced rate of VAT for tourism and hospitality will be extended for six months to the end of September
- Minimum wage to increase to £8.91 an hour from April
The adult ISA annual subscription limit for 2021/ 2022 will remain unchanged at £20,000. The junior ISA annual subscription limit for 2021/ 2022 will remain unchanged at £9,000.
The Lifetime allowance was frozen at £1,073,100:There will be no inflationary increases to the lifetime allowance (LTA)and it will remain at its current level until April 2026.
There were no changes to pension tax relief in the Chancellor’s Budget.
There are no changes to income tax rates of England & Wales for 2021/ 2022. 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/ 2026.
Capital Gains Tax
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. 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/ 2026.
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 rises on the horizon
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.
The Chancellor said “This new higher rate won’t take effect until April 2023, well after the point when the OBR expect the economy to have recovered“. However, the rate will stay at 19% for about 1.5 million smaller companies.
In another substantial announcement for businesses, for the next two years, when companies invest, they can reduce their tax bill by 130% in a super deduction. “This will be the biggest business tax cut in modern British history”.
The struggling housing market was also addressed during the Budget 2021 speech, where it was announced that 95% mortgages will be guaranteed by the government as part of plans to turn “generation rent into generation buy”.
In an effort to further boost the housing market the current holiday for England which sees the nil-band rate cut up to a threshold of £500,000, would be extended for three months until June 30. A tapered rate of support, which will see the nil-band rate apply up to a threshold of £250,000, will then be introduced for a further three months until Sept 30. Thereafter, the threshold for paying stamp duty will be reinstated at £125,000. In Wales, Finance Minister Rebecca Evans confirmed that the Land Transaction Tax temporary reduction period will be extended by a further 3 months so that it will end on 30 June 2021. Until then, there will be no tax payable on property sales below £250,000.
If you would like to know how the various decisions may affect you and your finances, please reach out to our Independent Financial Advice team.