There were no major shocks in today’s Budget, although there were a number of ‘stealth’ tax increases which are not initially apparent, relating to the freezing of tax allowances and the pensions Lifetime Allowance.
In addition, the Government is set to announce a series of tax consultations on the 23 March which may begin to reveal their plans to balance the books after the unprecedented spending required to deal with the pandemic (albeit the Bank of England has bought all of the increased debt, but that is another story!).
The personal allowance and basic rate band have been increased in line with Consumer Prices Index.
For the tax year 2021/22, the personal allowance will be £12,570 with the basic rate band increasing to £37,700, meaning that the higher rate tax threshold will be £50,270. The personal allowance and higher rate threshold will remain fixed until 2025/26, resulting in an increasing tax take and more individuals finding some of their income being taxed at 40%.
Capital Gains Tax (CGT)
While there was much speculation ahead of the Budget on possible changes to CGT, there were no changes announced to CGT rates or the annual exemption. However, the annual exempt amount will remain frozen at £12,300 for individuals and £6,150 for trustees of settlements, until 2025/26.
Furthermore, this is one area that may be included in one of the tax consultations due to be announced on 23 March?
Inheritance Tax (IHT)
Both the ‘Nil Rate Band’ and ‘Residence Nil Rate Band’ will remain fixed at £325,000 and £175,000 respectively until April 2026.
With the bands frozen for a further five years, this will bring more estates into the IHT net.
The Lifetime Allowance (LTA) is frozen at the current level of £1,073,100 and, unlike the Income Tax allowance and tax bands, there will be no inflationary increase from 2021/22 – it will remain at its current level until April 2026.
A prolonged period of no inflationary increases will mean that more and more individuals may face LTA charges. However, it is important to remember that the LTA is not a ceiling on what can be saved into pensions. There are many good reasons for those potentially impacted to continue saving into their pension.
Pension tax relief – despite the usual rumour and conjecture beforehand, no changes were made to pension tax relief nor the ‘tax free cash’ allowance.
Corporation Tax is set to rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits under £250,000 so that they pay less than the main rate.
For those companies that have sufficient pricing power, this could lead to price rises from April 2023?
However, wouldn’t it be a ‘rabbit out of the hat’ if the Chancellor is able to announce just before the next election that Corporation Tax is going to reduce back towards 19% (apologies for being such a cynic!)?