The Budget 3 March 2021
The Chancellor, Rishi Sunak, today delivered his second Budget, and were there any real surprises in there?
Much had been made in the press about a possible increase in Corporation Tax and even Capital Gains Tax but with the effects of COVID 19 on the economy and government support for business continuing well into 2021, how would this balance out.
Whilst the Corporation Tax rise did come to fruition, it was perhaps more what he didn’t do in terms of freezing the tax-free personal allowance, higher rate tax bands (Scottish government does of course set it’s own rates here), Inheritance Tax nil rate band and residence nil rate band, Capital Gains Tax annual exemption, and pensions lifetime allowance frozen until April 2026 which will affect most; back to the days of fiscal drag/stealth tax!
A snapshot of the upcoming changes are set down in the following extract from those published on the Treasury’s website:
Inheritance tax nil-rate band and residence nil-rate band – The inheritance tax nil-rate bands will remain at existing levels 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. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
Personal Allowance and higher rate threshold (HRT) – The income tax Personal Allowance will rise with CPI as planned to £12,570 from April 2021 and will remain at this level until April 2026. The income tax HRT will rise as planned to £50,270 from April 2021 and will remain at this level until April 2026. The Personal Allowance applies across the UK. The HRT for savings and dividend income will also apply UK-wide. The HRT for non-savings and nondividend income will apply to taxpayers in England, Wales, and Northern Ireland.
National Insurance contributions (NICs) thresholds – As previously announced, and legislated for in February 2021, in 2021-22 NICs thresholds will rise with CPI, bringing the NICs Primary Threshold/Lower Profits Limit to £9,568 and the Upper Earnings Limit (UEL)/Upper Profits Limit (UPL) to £50,270, in line with the income tax HRT. The UEL/UPL will then remain aligned with the HRT at £50,270 until April 2026. All other NICs thresholds will be considered and set at future fiscal events. NICs thresholds apply across the UK.
Capital Gains Tax Annual Exempt Amount (AEA) uprating – The value of gains that a taxpayer can realise before paying Capital Gains Tax, the AEA, will be maintained at the present level until April 2026. It will remain at £12,300 for individuals, personal representatives and some types of trusts and £6,150 for most trusts.
Pensions and savings tax
Pensions Lifetime Allowance – The government will maintain the Lifetime Allowance at its current level of £1,073,100 until April 2026.
Corporation tax – To balance the need to raise revenue with the objective of having an internationally competitive tax system, the rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for small profits under £50,000 will remain at 19% and there will be relief for businesses with profits under £250,000 so that they pay less than the main rate. In line with the increase in the main rate, the Diverted Profits Tax rate will rise to 31% from April 2023 so that it remains an effective deterrent against diverting profits out of the UK.
VAT threshold – The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022, giving businesses certainty.
Whilst we have no reason to believe the above is not accurate it is for general guidance only. Buick & Co Chartered Tax Advisers and Tax Consultants take no responsibility whatsoever for this blog, its reliability or any actions you take having read it.