How was Rishi Sunak’s March Budget for you? The fact that there are tax rises coming was no big surprise – we all know that enormous debt has to be paid for. Freezing numerous tax thresholds will start to impact if, as we expect, inflation is on the march again.
Income Tax rates remain unchanged and the Personal Allowance will rise in line with CPI as planned to £12,570 from April 2021 but will then be frozen for 5 years.
The Basic rate tax band will increase in April 2021 to £37,700 so this means that someone with a full personal allowance available will pay 40% tax on income above £50,270.
Higher rate tax will be rated in line with CPI in April but this too will be frozen until April 2026. The starting rates and savings tax band will remain as it is at £5,000 for 2021/22.
There was plenty of speculation relating to Capital Gains Tax and the annual exempt amount on capital gains remains at £12,300 for individuals and personal representatives and some types of trusts and £6,150 for most trusts and this will remain frozen until April 2026.
Inheritance Tax bands will be frozen until April 2026 so for a couple with a property their joint nil rate band will generally be £1M and tapers down to £650,000 from estates worth over £2 million – again no changes.
The Corporation tax hike from 19% to 25% in 2023 is an eye-watering 31.57% increase and although Corporation Tax on profits below £50,000 will stay the same at 19% tapering up from £50,000 to £250,000, nevertheless we will be talking to our business clients to ensure profits are extracted in the most efficient way. Making full use of pension contributions will be under our spotlight and the relationship between salary and dividends will need to be re-examined too.
The temporary Stamp Duty Land Tax has been extended and the temporary increase in the residential Stamp Duty Land Tax nil rate band to £500,000 will continue to apply in England and Northern Ireland until 30 June 2021 but steps down to £250,000 from 1 July 2021 and reduces again to £125,000 on 1 October 2021.
ISA allowances will not change – £20,000 for individuals and £9,000 for the junior ISA for the current tax year. It’s going to be even more important to make use of these allowances as sheltering the meagre amount of interest offered by cash ISAs isn’t making the best use of this increasingly isolated tax break. If you’re wondering why we are so keen on ISAs and want to know what we are recommending for a cautious option that can bridge the gap between a full-on Stocks and Shares ISA and cash, do give us a call.
The Lifetime ISA withdrawal charge was temporarily reduced from 25% to 20% and this will apply until 5 April so that lSA investors can withdraw their money for any reason over this period and only lose the Government bonus on the amount they withdraw.
The Pension Schemes Standard Lifetime Allowance will not be increased until 2026 and will remain at £1,073,100 throughout this period. This will have an impact on many clients whether they have their own pension schemes privately or via their employers or are in the big public service schemes eg NHS, Teachers, Civil Service. The intention was that the lifetime allowance would increase each year in line with CPI recorded in September before the tax year started. We were expecting the lifetime allowance to increase to £1,078,900 on 6th April so not such a big change you might think. All good stealth taxes operate the same way though, no feathers ruffled when they are first announced but the Office for Budget Responsibility (OBR) calculate that this will reduce the value of the standard lifetime allowance by over £50,000 between now and 2026 so that’s an extra £27,500 tax from every affected pension plan, just waiting to be collected.
The Mortgage Guarantee Scheme will be introduced in April 2021 and everyone buying will have the opportunity to fix their initial Mortgage for at least five years. The Scheme is available for new Mortgages up to 31 December 2021 and provides a guarantee to lenders across the UK who offer Mortgages to people with a deposit of just 5% on homes up to a value of £600,000.
Despite the fact that the Chancellor’s plans were not as draconian as perhaps we feared, nevertheless, inflation is on its way and the loss of any CPI increases in tax bands, personal allowances, lifetime allowances, etc, will bite.
Timely, strategic financial planning is even more important from now on, whether you are working or retired, young or more advanced in years, looking to build up savings and investments living your best life in retirement or planning to pass on wealth to the next generation. Do get in touch if you have any specific questions. If you have friends and family who need their own personal financial road map, please pass on an invitation to get in touch for an initial discussion, free of charge and without obligation.