Spring Budget 2021
On Wednesday (3rd March) the Chancellor of the Exchequer, Rishi Sunak, presented his second pandemic budget. He continued to try and reassure the nation saying he would do “whatever it takes” to support businesses and workers at large through the remaining lockdown and as restrictions begin to ease. The main tools for this are furlough and SEIS schemes which have been extended.
The support provided to date has cost an eye watering £407 billion. To put this in context, the national debt as a percentage of GDP has risen from 80.7% at the end of March 2020 to 99.4% at the end of December 2020 (according to the Office of National Statistics).
As one would expect, the thoughts of the Chancellor are turning to how these costs will be met. Although this budget didn’t include many of the eye watering policies mooted in the papers, there may be bigger changes ahead.
Here are the five takeaways we believe are most relevant from a financial planning perspective.
1. Lifetime allowance freeze
The standard lifetime allowance will be frozen at £1,073,100 up to and including the 2025/26 tax year. Prior to this budget the allowance was due to increase in line with CPI each year. The impact of this could mean (depending on CPI) that the lifetime allowance in the 2025/26 tax year is circa £100,000 lower than previously anticipated.
The freezing of the lifetime allowance will make transitional protections even more valuable, as they lock in higher personal lifetime allowance. It should be noted that it remains possible for clients to apply for both Individual Protection 2016 and Fixed Protection 2016.
2. ESG (environmental, social and corporate governance) default fund charge cap?
As part of the drive to encourage green investment, the Government is concerned that the current level of charge cap is discouraging automatic enrolment pension schemes from investing in ESG assets. Given the increased management and scrutiny required by these funds, there will be a consultation on whether to allow certain types of ESG funds within automatic enrolment default funds, but not subject them to the same level of charge cap.
3. Frozen tax thresholds
Whilst the Conservatives can say they maintained their manifesto promise of not raising rates of Income Tax, VAT or National Insurance, they have frozen the thresholds at the 2021/22 level until April 2026. A stealth tax rise? It depends on your political leanings I suspect. However you perceive it, more people become tax payers and more will become higher rate tax payers as a result of this change.
In a similar vein, the Inheritance Tax and Capital Gains Tax have been frozen at their current levels.
4. NS&I Green bond
Mr Sunak announced a new National Savings & Investment Green bond. This product is expected to be launched this summer. The interest rates are not yet known, but they need to be high enough to create demand whilst offering value to the taxpayer.
5. Increase in Corporation Tax
Perhaps the biggest step towards increasing the tax take was the change to Corporation Tax.
The Government plans to increase the rate of Corporation Tax from 19% to 25% from April 2023. However, the new increase rate will only apply to businesses that make profits of £250,000 or more. The current rate of 19% will continue to apply to small businesses with profits of less than £50,000. A taper will apply to companies whose profits fall between the two thresholds.
If you would like discuss any of the above, or any other aspects of financial planning, please don’t hesitate to get in touch. We may all still be working from different locations, but we are here to help and would be delighted to hear from you.
**On 23rd March the Government is due to issue a range of consultations on tax policy. This could lead to more substantive changes in pension tax relief, Capital Gains Tax and Income Tax.
Please note......
this information is based on our current understanding of the pension tax rules and is provided for information only. Tax rules may change in the future and tax treatment depends on your personal circumstances.