Cynic's View of Budget 2021
Published / Last Updated on 05/03/2021
No major shocks in the Chancellor’s Budget but fundamentally a ‘keep going as we are for this year’, protect people and jobs with extended furlough pay, extended universal credit, business interruption grants, help for the mortgage market, encouragement for businesses to reinvest and grow, increases in tax allowances for April 2021. Then signs of how they will claw this back, increase taxes and start paying down the covid-19 debt with many allowances frozen until 2026 (higher stealth taxes in all but name) as well as corporation tax rises. A sign that Mr Sunak will increase taxes in a number of areas over the next few years.
- Much speculated tax rises never appeared with:
- Personal tax allowances and higher rate tax thresholds increased for 2021/22 and then frozen until 2026.
- No changes to capital gains tax (CGT)
- No changes to pension tax relief
- The Lifetime Allowance (LTA) for pensions being frozen until 2026
- Inheritance Tax nil rate bands (NRB) frozen until 2026
- Further assistance for the mortgage market confirmed
Income tax
UK (excluding Scotland) - 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.
- Scotland - 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
- Wales - no change: Income tax rates, bands and allowances for Welsh taxpayers remain fully aligned with the rest of the UK.
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.
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.
Inheritance tax
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. = Stealth Tax
IR35 changes to go ahead
This will result in 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.
Mortgages
The extension to the stamp duty holiday was confirmed as well as the new Government backed Mortgage Guarantee Scheme for lenders up to 95% LTV schemes. An inflation driver to push house prices higher.
Pensions
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 sustained period of no inflationary increases will mean that more and more people may face LTA charges. = Stealth Tax
Pension tax relief: There were no changes to pension tax relief in the Chancellor’s Budget - postponed stealth tax?
Tax Consultations
The Government will announce a series of tax consultations on the 23 March with plans to balance the books after the unprecedented spending required to deal with Covid pandemic. More stealth taxes to follow.
