It is safe to assume that a global pandemic was probably the last thing that Rishi Sunak envisaged having to navigate during his first year as Chancellor of the Exchequer. Nevertheless, for many, he has impressed, and odds are now weighing in favour of him becoming the next Prime Minister.
This week Mr Sunak used his second budget to highlight the UK’s highly successful vaccination programme and vowed to do “whatever it takes” to support businesses, jobs and individuals. With forecasted borrowing set to top £355bn within the current financial year, balancing the books is not going to be a job for the faint-hearted.
The 23rd March will see new tax consultations from The Treasury designed to outline what sort of tax rises lie ahead to pay for the enormous cost of the pandemic. For now, a rise in corporation tax rates along with a number of frozen tax thresholds is what has been announced to get the ball rolling.
The main announcements from the Spring Budget 2021 can be summarised as follows:
- The furlough scheme extended to the end of September 2021. This affects 4.7m British workers.
- The issuing of a fourth grant for the self-employed income support scheme, and a fifth from May. These grants will pay up to 80% of three months’ average trading profits, capped at £7,500.
- Business rates relief for retail, hospitality and leisure sectors to be expended until the end of June.
- An extension of the VAT cut for hospitality and tourism sectors to September.
- A £5bn provision for cash grants designed for those businesses hit hardest by the pandemic. These include shops, pubs, restaurants and personal care services such as hairdressers.
- These grants are estimated to provide approximately £18,000 to 700,000 businesses.
- £3,000 cash bonus for businesses taking on an apprentice, to boost jobs.
- Announcement of a significant rise in corporation tax rates, citing it was ‘fair and necessary’ for businesses to assist in their share of the recovery.
- Corporation tax rates will rise from 19% to 25% from April 2023. Expected to generate an additional £12bn per annum.
- Smaller businesses with profits of up to £50,000 will remain at the 19% tax rate.
Individual Personal Allowance
- This is the first band of income (currently £12,500) that an individual can earn without suffering any income tax. The amount is set to rise to £12,570 from 6th April 2021, but will then remain at this level until April 2026 at the earliest.
- This is anticipated to generate £6bn in additional tax revenue per annum.
- The National Insurance thresholds will also be frozen from April 2021 to April 2026.
Pensions & The Lifetime Allowance
- The Lifetime Allowance is the amount of pension savings you can hold before the total incurs a tax charge.
- This threshold is currently £1,073,100 and is meant to be rising by inflation (CPI) each year.
- The current level is set to be frozen until 2026.
- Money withdrawn as a lump sum above this amount will incur a 55% tax charge, or if withdrawn as an income will suffer 25%. The residual is then charged at the individual’s marginal rate of income tax.
Capital Gains Tax
- CGT is an area of much-anticipated change, but for now, the news was quiet. A comment was made regarding clamping down on “avoidance, evasion and non-compliance” which may lead to stricter CGT reporting.
- CGT rates have been frozen until 2026.
- The current property Stamp Duty holiday, set to end of 31st March, has now been extended to the end of September 2021.
Mortgage Guarantee Scheme
- A 5% deposit mortgage guarantee scheme has been announced to assist prospective buyers.
- It will be available on properties worth up to £600,000.
- This scheme is very similar to the Help-to-Buy scheme which closed in 2016.
- These remained unchanged and are £20,000 for adults and £9,000 for Junior ISAs.
- For the environmentally-conscious there was the announcement of a UK ‘green’ bond which would be available via the National Savings & Investments (NS&I). The green bond is set to enable savers to support green projects such as renewable energy and the move to electric transport.
Pensions Tax Relief
- No changes at present, despite speculation of a move to a flat rate of 25% tax relief.
- No changes, with the Nil Rate Band threshold set to remain at £325,000 until 2026.
- The Residence Nil Rate Band is also set to be frozen at £175,000 until 2026.
The Elevation Summary
This week’s changes come as no real surprise and, with the level of government borrowing at virtually an all-time high, it makes future tax reform almost a certain guarantee. At Elevation Wealth Management, it is our job to help you navigate your way through this complex system and to help you reach your goals – whatever they may be.
If you are wondering how any of the points outlined within this article might affect you personally, please get in touch with your IFA at Elevation Wealth Management.