While there were no big shocks in the Chancellor’s budget in 2021, there were some key rate freezes detailed below. The Government will also announce a series of tax consultations on the 23rd March 2021 which may give us more insight into longer term plans.
The big news from the chancellor on pensions was the “freezing” of the Pension Lifetime Allowance at £1,073,100 until April 2026. Excess benefits above the lifetime allowance will face a Lifetime Allowance Charge. This can be taken (before 75) in one of two ways: 55% charge if taken as a lump sum; 25% charge if taken as income (plus income tax at marginal rates). At age 75 benefits will automatically be subject to a lifetime allowance test, where any excess will be taxed at 25%.
The annual allowance remains at £40,000 for 2021/22.
Tapered Annual Allowance
Threshold income remains at £200,000 and adjusted income at £240,000 for 2021/22. More information can be found here on how this works.
Pension Tax Relief
There were no changes to pension tax relief in the Chancellor’s Budget.
There has been no change with limits being frozen.
The adult ISA annual subscription limit for 2021/22 will remain unchanged at £20,000.
The junior ISA annual subscription limit for 2021/22 will remain unchanged at £9,000.
The Lifetime ISA annual subscription limit for 2021/22 will remain unchanged at £5,000 (£4,000 net). The LISA withdrawal charge returns to 25% from 6 April 2021.
Corporation tax is set to rise from 19% 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.
Inheritance Tax (IHT)
There has been no change with limits being frozen. Both the nil rate band and residence nil rate band will remain fixed at £325,000 and £175,000 per person respectively until April 2026. The Government intends to publish further tax consultations on 23 March and we will let you know if IHT changes are amongst them.
There have been no changes to the rates for 2021/22. The personal allowance and basic rate band have been increased in line with CPI. The new 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 frozen until 5th April 2026. (Rates in Scotland are different)
Capital Gains Tax (CGT)
After the OTS paper on this many expected big changes in the budget but 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 personal representatives) and to £6,150 for trustees of settlements, until 5th April 2026. The Government intends to publish further tax consultations on 23 March and we will let you know if CGT changes are amongst them.
There were no changes to entrepreneurs’ relief.
Stamp Duty Land Tax (SDLT) Holiday
The July 2020 stamp duty holiday, raising threshold from £125,000 to £500,000 before you are due to pay Stamp Duty Land Tax (SDLT) is now extended to the end of June 2021. A £250,000 limit will then continue until the end of September; thereafter it will revert back to £125,000.
There are no changes to the previously announced National Insurance rates for tax year 2021/22. The National Insurance contributions Upper Earnings Limit and Upper Profits Limit will remain in line with the higher-rate threshold of £50,270.
Green National Savings & Investment (NS&I) product
This new NS&I product will be offered from summer 2021 to allow savers to take part in efforts to reduce climate change. We await confirmation on the proposed rate.
The contactless payment card limit will increase from £45 to £100 later in the year. The number of consecutive transactions before consumers are required to provide their PIN will remain at five, but the cumulative transaction limit, which is how much you can spend across those five payments, will be raised to £300.
Mortgage Guarantee Scheme
From April 2021, borrowers will be able to secure a mortgage up to £600,000 with a 5% deposit. This will apply to new mortgages up to 31 December 2022. There will be the option to fix the mortgage for at least five years.
If you would like further information on the Budget, please contact the Willis Wealth Management team on 028 9032 9042.
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