We had the budget in early March and as expected Rishi struck a sombre tone as he was telling millions of us that we are about to have an effective tax increase. I can’t say it comes as much of a surprise considering the level of borrowing, we’ve seen since the onset of the pandemic.
Naturally there was a fair amount of waffle and buzzwords that make for a fun game of “budget bingo”. But for your benefit we thought we’d lay out some key elements that will affect you from a personal financial planning perspective.
- Personal tax-free allowance is increasing from £12,500 to £12,570 from April 2021. Good news, however, it’s then going to be frozen at this level until April 2026
- Higher rate tax will now kick in at £50,270 instead of £50,000. Yay, but again frozen then until April 2026.
- The payment threshold for National Insurance Contributions will rise from £8,632 to £9,500 from April 2021. This is good news and no mention of this being frozen. Could the long-awaited alignment of Tax and National Insurance allowances be on the horizon? Would make like a little easier for us all.
- The thresholds for Inheritance Tax (IHT) have been frozen until 2026. The nil rate band of £325,000 hasn’t increased since 2009, meaning that with property growth over that time, more and more estates are paying some form of inheritance tax. As a reminder there’s also the main residence nil rate band of £175,000.
- Lifetime Allowances for pensions have all been held at its current level of £1,073,100 until April 2026. As pension specialists we can help you navigate this tricky subject.
- Despite speculation that rates might rise, the Chancellor did not change Capital Gains Tax rates, welcome news for many who pay CGT on the sales of businesses, shares and second homes.
- From 2023 Corporation tax is to rise from 19% to 25% for business with profits above £250,000. For those with profits below £50,000 it will remain at 19% with a tapered rate between. Who doesn’t love a bit of additional tax complication.
- To provide context, Mr Sunak said in his speech: “Even after this change the United Kingdom will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.” The cynic in me did a fact check and he was correct.
- The Chancellor kept ISA and savings allowances at the current rates of £20,000 with £9,000 for a Junior ISAs or Child Trust Fund. Although many would have welcomed an increase, the round numbers are helpful.
- Annual contribution limits to pensions also remain unchanged
Property and Mortgages
- The £500,000 nil rate Stamp Duty Holiday available in England and Northern Ireland has been extended to the end of June, then tapered to £250k to the end of Sept and back to £125k from 1 October 2021. This will directly help those who are facing delays with their property purchase and were expecting to miss the tax break deadline due to close at the end of March.
- A new Mortgage Guarantee scheme is being launched to help borrowers who can only afford 5% deposit, with 95% mortgages from next month. The chancellor confirmed that a government guarantee means first-time buyers should get a wider choice of mortgages than currently available and this will be available when buying properties worth up to £600,000.
If you have any queries regarding these changes and how they may affect you, please do give us a call on 0117 942 4333.