Considering the economic impact of the Covid-19 pandemic, the chancellor had a tough job in only his second Budget so far. Rishi Sunak had to balance maintaining support for hard-hit sectors while also considering how he might repair the black hole in the public purse caused by repeated lockdowns.
There were plenty of announcements in his speech, so here are 10 of the ways the 2021 Budget could affect you.
1. Personal Allowance freeze
In his speech, the chancellor announced that the Personal Allowance – the amount you can earn before you start to pay Income Tax – would rise to £12,570 in April 2021 and then remain at this level until 2026.
He also announced the threshold for paying higher-rate (40%) tax would rise to £50,270 before being frozen for five years.
This is a shrewd political move – as Rishi Sunak said: “Nobody’s take home pay will be less than it is now as a result of this policy.” However, as salaries rise, more people will begin to pay tax and become caught in the higher-rate tax bracket.
The Treasury anticipates this measure will boost government income by £8.2 billion a year by 2025/26.
2. Extension of the Stamp Duty holiday
If you’re in the process of moving home, or you intend to buy property before the end of September 2021, you’ll benefit from a tax break.
The Stamp Duty threshold will remain at £500,000 until the end of June 2021, meaning you could save up to £15,000 in tax when buying property. After that, the threshold will reduce to £250,000 – still twice its normal level – and so there will still be tax savings if you complete before 30 September.
3. A Corporation Tax rise
As widely predicted, the chancellor announced that Corporation Tax for larger businesses will rise by six percentage points in 2023. However, not all firms will see their tax bill rise:
- Firms making a profit of less than £50,000 will continue to pay Corporation Tax at the current rate of 19%.
- Firms making profits of between £50,000 and £250,000 will pay a tapered rate of tax, with details to be announced.
- Firms making a profit of more than £250,000 will pay Corporation Tax at 25%.
If your business makes more than £50,000 then it’s likely you will pay more tax. It could pay to take professional advice as there may be ways of mitigating your Corporation Tax bill – for example, by making pension contributions through your company.
4. A freeze in the Lifetime Allowance
Freezing the Lifetime Allowance – the maximum amount of tax-relieved savings you can accumulate – has two benefits for the Exchequer:
- It generates additional revenue through additional Income Tax and National Insurance Contribution receipts from individuals reducing their pension contributions.
- It brings in revenue from Lifetime Allowance charges paid by those who accumulate pension savings above the limit.
The chancellor froze the Lifetime Allowance at £1,073,100 until 2026. If you accumulate more pension savings than this, you could face a tax charge of 55% if you take any money in excess of this as a lump sum, and a 25% charge if you take it as income.
According to the Telegraph, more than 290,000 workers already have pension wealth above the Lifetime Allowance but have not triggered the tax charge. Royal London say that 1.25 million non-retired people are projected to breach the allowance.
Careful planning is needed if you are approaching or at retirement and you have pension savings of around £1 million. Speak to us if you would benefit from professional advice.
5. Grants for the hospitality, leisure, and retail sectors
There was some good news if you run a business in the leisure, retail, or hospitality sector. The chancellor announced that almost 700,000 shops, restaurants, hotels, hair salons, gyms, and other businesses in England, will be eligible for a “restart grant” from a new £5 billion fund.
Non-essential retail businesses will be eligible for a grant of up to £6,000 per premises. Hospitality and leisure businesses can apply for grants of up to £18,000.
In addition, the government has extended the temporary 5% reduced rate of VAT until 30 September 2021. A 12.5% rate will then apply for a further six months, until 31 March 2022.
6. An extension of the Job Retention Scheme
To continue to support jobs, Rishi Sunak announced that the Job Retention Scheme – the “furlough” scheme – would continue until September.
The government will continue to pay 80% of the wages of furloughed workers (up to £2,500 per month) until the end of June. After that, employers will be expected to pay 10% of wages in July, and 20% in August and September.
As an employer, you’ll have to budget to pay some of the wages of furloughed staff in the summer as the economy reopens.
7. A freeze in the Capital Gains Tax annual exemption
Each year, an individual can realise £12,300 in gains without paying any Capital Gains Tax (CGT). The chancellor announced he was freezing this exemption until 2026.
It was widely speculated that Rishi Sunak would announce more wide-ranging reforms to CGT so, while a freeze in the exemption could see you pay more tax on the sale of assets, it could have been much worse.
It may well be worth crystallising gains and using the exemption in the 2021/22 tax year in case the chancellor decides to make other reforms, such as aligning CGT rates with Income Tax.
8. Two more self-employed grants
If you’re self-employed, the chancellor announced two more instalments in the Self-Employed Income Support Scheme (SEISS).
The fourth grant covers February to April 2021 and will again be 80% of average trading profits up to a maximum of £2,500 per month.
Around 600,000 newly self-employed people will be eligible for this grant if they submitted a tax return before 2 March 2021.
The fifth grant will cover May to July and will depend on how seriously your business has been affected by the pandemic:
- If your turnover has fallen by more than 30%, the SEISS will continue to pay 80% of profits up to £2,500 per month.
- If your turnover has fallen by less than 30%, the SEISS will pay 30% of trading profits, up to £950 per month.
It is likely that you will be able to claim the fifth grant from July 2021.
9. A freeze in the Inheritance Tax thresholds
As well as a Lifetime Allowance, CGT exemption, and Personal Allowance freeze, the chancellor also froze the Inheritance Tax nil-rate band at £325,000 and the residence nil-rate band at £175,000.
As property prices and asset values rise, more estates will likely face an Inheritance Tax bill.
There are a range of ways that you can mitigate Inheritance Tax, so speak to us if you’re worried about the value of your estate exceeding the £325,000 or £500,000 thresholds.
10. ISA allowances remain at 2020/21 levels
If you’re a saver or investor seeking tax-efficient returns then you will welcome the news that the ISA allowance remains at £20,000 in the 2021/22 tax year. The Junior ISA allowance also remains the same, at £9,000.
While there was no reduction in the allowances, it’s worth remembering that the ISA allowance has been at this level since 2017. If it had risen in line with inflation it would now be worth £21,516.42, according to the Bank of England’s inflation calculator.
Get in touch
If you want to find out more about how the Budget affects you, and what you can do to make the most of your allowances and exemptions, please get in touch. Email firstname.lastname@example.org or call us on 01189 876655.