A Budget of giveaways. We saw an extension of furlough, grants for the self-employed and stamp duty holiday extension to name but a few. The Chancellors catch phrase of ‘whatever it takes’ was dusted off once again, Rushi Sunak said he wanted to be honest and paved the way for tax changes required to pay for the debt incurred due to the pandemic. The freezing of numerous tax thresholds and raising Corporation Tax to 25% from April 2023 for some companies was the main tax takeaway. It is only a matter of weeks until we see the tax consultations promised by the Treasury.
There is a definite feeling of fiscal drag and stealth tax.....
Income Tax
The income tax rates remain unchanged.
The Personal Allowance will rise in line with CPI as planned to £12,570 from April 2021 and will be then frozen until April 2026.
The basic rate band will increase from April 2021 by £200 to £37,700. This means that an individual with their full personal allowance available will begin to pay higher rate tax on income above £50,270 (£37,700 + £12,570).
The higher rate threshold will be uprated in line with CPI as planned in April 2021 but then is frozen until April 2026.
The starting rate for savings tax band will remain frozen at its current level of £5,000 for 2021 to 2022.
Capital Gains Tax
The annual exempt amount on Capital Gains remains unchanged at £12,300 for individuals, personal representatives and some types of trusts and £6,150 for most trusts. This will remain frozen until April 2026.
Inheritance Tax
The Inheritance tax bands will be frozen until April 2026. The nil-rate band will continue at £325.000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.
Corporation Tax
The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for profits under £50,000 will be 19% with relief for businesses with profits under £250,000 so that they pay less than the main rate of 25%.
Stamp Duty Land Tax
The Temporary Stamp Duty Land Tax (SDLT) 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. From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.
ISA allowances
The ISA allowances will be frozen at £20,000 and £9,000 for the Junior ISA for the 2021/2022 tax year.
The Lifetime ISA (LISA) withdrawal charge was temporarily reduced between 6 March 2020 and 5 April 2021 from 25% to 20% to help individuals access savings if needed during the pandemic. This means that LISA investors can withdraw their money for any reason over this period, only losing the government bonus earned on the amount they withdraw.
Registered pension schemes
The standard lifetime allowance (SLA) The SLA for 2020/21 will not be increased between 2021/22 and 2025/26 (inclusive). Instead, it will remain at £1,073,100 throughout this period.
Before the change, the SLA for each tax year from 2021/22 to 2025/26 (inclusive) would have increased in line with any annual increase in the consumer prices index (CPI) to the September before the tax year started. Without the change, the SLA for 2021/22 would have been £1,078,900.
As a result, members who are subject to the SLA, will pay a higher lifetime allowance charge on any crystallisation(s) which take(s) them above the £1,073,100 limit in 2021/22 to 2025/26 (inclusive).