Yesterday Chancellor Rishi Sunak unveiled his Spring Budget for 2021.
This budget is set against a backdrop in which the government has been clear about the eventual need to ‘balance the books’ because of the effect of Covid-19 on public finances, as well as measures introduced by the government to help support the economy and jobs.
Because of the current situation, there has been even more rumour and speculation surrounding the chancellor’s anticipated announcements than usual.
There was a promise of no increases to Income Tax, VAT and National Insurance rates and in the main most of the changes won’t have a significant impact on you in the immediate term, albeit they will over the next few years with frozen personal tax, capital gains tax and inheritance tax allowances.
Here are the key changes we think it is worth being aware of:
Tax Thresholds
The following tax thresholds have been confirmed to be frozen until April 2026:
- Pension Lifetime Allowance (LTA) at £1,073,100
This is the total allowable value of all pensions you hold (excluding the State Pension) without being taxed
- Capital Gains Tax Annual Exempt Amount at £12,300
This is the amount of capital gain a person can ‘realise’ (which means sell) from their taxable investments each year, without paying tax
- Personal Allowance at £12,570 from April 2021 to April 2026
This is the total amount of ‘earned’ income you can have each year without paying tax. Earned income is classed as employment income, rental income or pension income.
- Higher Rate Tax at £50,270 from April 2021 to April 2026
This is the point at which you pay 40% tax on earned income, which is defined above.
- ISAs and Junior ISAs at £20,000 and £9,100 respectively
This is the total amount you can put in these tax-efficient investments each year per person.
Magenta view: whilst it is good news that none of these rates and allowances have been cut, because they are frozen it does mean that in ‘real terms’ this will have an impact for everyone.
National Savings and Investments (NS&I) Green Bonds
The government has announced new NS&I Green Bonds will be launched this summer.
Little detail has been provided so far, but the treasury has confirmed that funds raised will be ‘earmarked for projects such as renewable energy and clean transportation that will help the UK build back greener and meet its target to cut greenhouse gas emissions to net zero by 2050’.
Magenta view: given our focus on Positive Impact investing, we are pleased to see the government is implementing this option, which we hope will raise awareness of this investment approach in general.
Whilst no information has yet been provided about the rate these Bonds will return to the investor, we will provide you with more information (should this be relevant) in your annual planning meetings.
Stamp Duty Cut Extended (only applies to England and Northern Ireland)
This tax break for homebuyers in England and Northern Ireland – as well as similar relief in Scotland and Wales – was due to finish at the end of March.
The chancellor has now said that the current stamp duty holiday in England and Northern Ireland – which means no stamp duty is paid on the first £500,000 of a property purchase – will be extended until 30 June.
This relief will be reduced to the first £250,000 of a purchase until the end of September, before returning to its pre-pandemic level of £125,000 from the start of October.
Magenta view: this is good news for anyone in the midst of a property transaction, as this created some panic about missing out on the relief. Nothing yet has been announced in Wales and Scotland on the back of this, but we hope for a similar extension.
Corporation Tax Increases and No Change to Entrepreneurs’ Relief
Corporation Tax has steadily fallen over time and currently stands at 19% for all businesses operating in the UK.
It was announced that the ‘headline’ rate of Corporation Tax will increase to 25%, however, the increase will not take effect until 2023.
Businesses with profits of £50,000 or less will continue to be taxed at 19%. A tapered rate will be introduced for companies with profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
Magenta view: this policy is clearly designed to tax those who can shoulder the heaviest burden: large businesses and it is great that there is no change for businesses finding their feet or trying to grow. This is good for public finances in general as many people think that large corporates do not pay their fair share of tax currently. It is however not such good news for smaller to medium sized businesses.
What is good for those smaller to medium sized businesses however, is the fact that there is no change to entrepreneurs’ relief. This means that upon selling shares in their business, owners can continue to benefit from a tax rate of 10% on the proceeds.
Others you may have missed:
- The furlough scheme has been extended until September
- Contactless card payments are increasing from £45 to £100 per transaction from later this year
- 95% mortgages are to return for young people struggling to get on the housing ladder, with the government guaranteeing 5%
If you would like to discuss how these announcements may impact on your planning, please do get in touch.