Budget 2021

On 3rd March 2021, Chancellor Rishi Sunak delivered the Spring Budget. In this budget he announced the platform to discuss the ways in which the government had been supporting individuals and businesses throughout the Coronavirus pandemic so far, and to outline the ongoing challenges of securing both economic growth and eventually repaying the tax bill, in order to help stabilise the country.

The Chancellor recognises that that job losses and borrowing on this scale are only comparable with wartime rates and are not sustainable indefinitely.

Some changes that were rumoured to be announced, were not, particularly with regard to a change to the capital gains tax system, beyond the freezing of the annual exempt amount for several years, which is reflected across all tax bands.

HEADLINES

COVID-19 SUPPORT SCHEMES

The Coronavirus Job Support Scheme will be extended to September 2021 across the UK.

Employer contributions will increase to 10% from July and 20% in August and September.

SELF-EMPLOYMENT INCOME SUPPORT SCHEME (SEISS)

The Self-Employment Income Support Scheme (SEISS) has been extended to September 2021 across the UK. Those who filed a tax return in 2019/20 (up until midnight on 2nd March 2021) are now able to claim
for the first time.

Grants from the Self-Employment Income Support Scheme (SEISS) made on or after 6th April 2021 are to be taxed in the year of receipt. This measure will have effect for the tax year 2020 to 2021 and subsequent tax
years.

A new charge will be enforced if a person is not entitled to a Self-Employment Income Support Scheme (SEISS) payment. This measure will allow HMRC to recover payments where an individual subsequently ceases to be entitled to all or part of the grant. The individual is subject to a 100% tax charge if they receive a payment but are not entitled to it.

An exemption from income tax for the Covid-19 support scheme will be introduced for working households receiving tax credits payments.

CAPITAL GAINS TAX

The annual exempt amount will remain fixed at £12,300 until April 2026. There are no changes made to the CGT rates.

INHERITANCE TAX

The nil rate band will remain at £325,000 and the residence nil rate band will remain at £175,000 until April 2026. The residence nil rate band taper threshold is also frozen at £2 million until April 2026.

INCOME TAX

Personal Allowance is increasing to £12,570 for 2021/22 and the basic rate band is increasing to £37,700. This means a higher rate threshold of £50,270 – with the caveat that these figures will remain frozen until April
2026.

There are no changes to dividend allowance, personal savings allowance or starting rate band for savings.

Note: Changes to Personal Allowance will apply to the whole of the UK. Changes to the basic rate limit, and higher rate threshold, will only apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividend income in the whole of the UK. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament.

NATIONAL INSURANCE

The National Insurance Contribution Upper Earnings Limit and Upper Profits Limit will parallel the higher rate threshold of £50,270 for the UK from 2021/22 through to 2025/26.

PENSIONS
The Lifetime allowance for pensions remains at £1,073,100 until April 2026. With no changes announced to annual allowance, money purchase annual allowance or tapered annual allowance.

The government will ensure that collective money purchase pension schemes (or collective defined contribution schemes), to be introduced by the Pension Schemes Act 2021, can be used as registered pension
schemes for tax purposes.

The government are to remove preventative barriers in pension regulation that may be discouraging Defined Contribution pension schemes from investing in high-growth companies. The government will look to tap into the pool of capital available from institutional investors, particularly DC pension schemes, to assist in the redevelopment of
the country’s infrastructure and economic initiatives and will seek consultation on whether certain costs within the charge cap affect the ability of pension schemes to invest in a wider range of assets.

Investing funds held within UK pensions could provide a massive boost to the government’s economic redevelopment plans, as well and could enable savers to benefit from the long term returns on these investments. The FCA is to publish a consultation.

INVESTMENTS

ISA
The ISA subscription limit remains at £20,000 in 2021/22. The Junior ISA and Child Trust Fund subscription limits will remain at £9,000.

SOCIAL INVESTMENT TAX RELIEF (SITR)

The government is extending the operation of Social Investment Tax Relief (SITR) to April 2023. This will continue availability of Income tax relief and Capital Gains Tax hold-over relief for investors in qualifying
enterprises.

BUSINESSES
Corporation tax rates will be frozen at 19% for the tax years 2021/22 and 2022/23. It will increase to 25% in 2023/24. However, for companies with profits of up to £50,000, the rate will remain at 19%.

Tapering for companies will begin with profits over £50,000 but less than £250,000. This means only companies with profits above £250,000 incur the full 25% rate.

Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25% and will be eligible to claim marginal relief.

The government will temporarily extend the period in which businesses may carry-back trading losses from the initial one year to three years. The extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses.

To prevent abuse, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability. For accounting periods beginning on or after 1st April 2021.

Between 1st April 2021 and 31st March 2023, companies investing in qualifying new plant and machinery will benefit from new first-year capital allowances. This means investments in main-rate assets will see relief at 130% super-deduction, whilst investments in assets qualifying for special rate relief will benefit from a 50% first-year allowance.

The temporary £1,000,000 limit for the Annual Investment Allowance will be extended by one year. This change will have effect from 1st January 2021 to 31st December 2021.

STAMP DUTY LAND TAX (SDLT)

The SDLT temporary cut in England and Northern Ireland is extended until September. The £500,000 nil rate band will be extended until 30th June 2021 then it will be set at £250,000 until 30th September 2021. On 1st October 2021, this will return to its standard level of £125,000.

Contact us if you want more details on how the budget will effect you.

Spending Review Statement 2020

Spending Review

This week’s Spending Review statement made by the Chancellor confirmed some key points on infrastructure and budgetary matters and leaves us with a strong feeling that the Budget next March is likely to be one of the most significant for many years.

Whilst the Chancellor focused on affirming the importance of supporting the health and livelihoods of the country at the present time, he also emphasised that the government needs to put in place a sustainable fiscal policy for restoring stability to public finances. This will inevitably involve a review of taxation and, as we know, there have been recent recommendations made to the government by the Office of Tax Simplification in relation to capital gains tax.

A summary of the measures announced in the Spending Review statement is show below.

  • An infrastructure bank headquartered in the North of England will be established as part of a National Infrastructure Strategy, to work with the private sector to finance major new investment projects across the UK. The bank is expected to be up and running by the Spring.
  • Local areas will be able to bid for funding from a new Levelling Up Fund with up to £4 billion of resources available. The Fund will invest in local infrastructure that has a visible impact on people and their communities and will support economic recovery.
  • Extra £38 billion of public services support in 2020/21, taking the total spending on the Covid-19 crisis this fiscal year to over £280 billion. In the next financial year there will be another £55billion Covid-19 expenditure.
  • Public sector pay freeze next year, apart from NHS workers and those earning below £24,000 a year.
  • National Living Wage (NLW) will increase in April by 19p (2.2%) to £8.91 an hour and the eligibility age will reduce to 23 (from 25). National Minimum Wage rates will also rise.
  • Overseas aid – spending will reduce from 0.7% of GDP to 0.5% – a cut of approximately £4 billion in 2021/22, to be restored when the financial situation allows.
  • From 2030, the Consumer Prices Index (CPI) including owner occupiers’ housing costs (CPIH) will effectively replace RPI. This will impact on index-linked gilts and pension increases, as CPIH is generally lower than RPI (for example 0.9% against 1.3% at October 2020).

Chancellor’s Summer Statement

Chancellor’s Summer Statement

The main points of the Chancellor’s Summer Statement are summarised in this article.

The Chancellor’s focus was on the government’s ‘Plan for Jobs’, with the objectives of supporting, creating and protecting jobs. The main initiatives announced were:

  • The ‘kick-start scheme’ to encourage employers (not Northern Ireland) to create new six month work placements for 16-24 year olds on Universal Credit and deemed to be at risk of long-term unemployment. The government will provide funding for each job at the level of 100% of the relevant National Minimum Wage for 25 hours a week plus the associated employer National Insurance contributions and employer minimum automatic enrolment contributions.
  • A Job Retention Bonus consisting of a one-off payment of £1,000 for employers that have used the Coronavirus Job Retention Scheme (CJRS) for each furloughed employee who remains continuously employed until 31 January 2021. To be eligible, employees will need to earn at least £520 per month (above the Lower Earnings Limit) on average for November, December and January. Employers will be able to claim the bonus from February 2021. More information will be available by 31 July and full guidance will be published in the Autumn.
  • Employers will receive a payment of £1,000 for each 16-24 year old trainee to whom they provide work experience. The government intends to improve provision and expand eligibility for traineeships to those with Level 3 qualifications and below, ensuring more young people will have access to training.
  • Investment in infrastructure projects.
  • Incentives to create ‘green’ jobs.
  • Green Homes Grant is to be introduced to provide at least £2 for every £1 spent up to £5,000 per household to homeowners and landlords making their properties more energy efficient. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household.
  • An immediate temporary Stamp Duty Land Tax (SDLT) holiday in England and Northern Ireland until 31 March 2021 by raising the threshold above which the main rate of SDLT is payable from £125,000 to £500,000. For second homes, the 3% additional rate will continue to apply. The new rate table is shown below (and the previous position can be seen here):
Slice of Residential Property Value SDLT Rate %
Up to £500,000   0
£500,001 - £925,000   5
£925,001 - £1,500,000 10
Over £1,500,000 12

The devolved administrations in Scotland and Wales set their own rates of tax on Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively. At the time of writing, neither country had announced their plans.

  • A temporary cut in VAT for the hospitality sector from 15 July to January 2021. A 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from UK restaurants, pubs, etc and accommodation and admission to attractions across the UK. Further guidance will be published by HMRC shortly.
  • Half-price discounts on meals at participating restaurants on Mondays to Wednesdays in August, of up to £10 per head.

The Chancellor confirmed that there will be a Budget and Spending Review in the Autumn.

Budget 2018 – what it means for clients

Budget 2018 – what it means for clients

With no significant tax or pension changes in the Budget, we can plan for the tax year ahead with confidence. The key planning points for us as Financial Advisers from the Budget, and from measures already announced, are:

Income tax

  • The personal allowance and higher rate threshold will increase earlier than expected to £12,500 and £50,000 respectively from April 2019. The income tax rates and bands for Scottish taxpayers will be announced in Scottish Budget on 12 December.
  • There are no other changes to income tax bands or allowances.

Pensions

  • The pension lifetime allowance (LTA) will rise to £1,055,000 from April 2019.
  • Reassuringly, there are no changes to pension annual allowances (AA). The standard AA remains at £40,000, the money purchase AA stays at £4,000 (with no carry forward) and there are no changes to the high income AA taper rules.

Capital gains tax

  • The capital gains tax allowance will increase by £300 to £12,000 from April 2019.

Inheritance tax

  • As expected, the IHT nil rate band will remain frozen at £325,000 until April 2021.
  • The residence nil rate band will increase from £125,000 to £150,000 from April 2019, allowing some couples to leave up to £950,000 to future generations free of IHT.

Trust taxation

  • There will be a consultation to consider the simplification and fairness of trust taxation.
  • The existing IHT regime for trusts is notoriously complex and any attempt to simplify it is extremely welcome. Removing the complexity of trust tax charges would allow us to concentrate on the benefits a trust can offer clients to control their affairs, without them being fearful of charges they don’t fully understand.

ISAs

  • Annual ISA limits stay at £20,000 per person, with no reduction in the range of ISA options available to meet different needs.

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