Budget 2021

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With the focus on kickstarting the economy, perhaps some of the tax rises we might have anticipated have been postponed for better times. However, there are still some less obvious ways the budget is set to bring in revenue.

Tax allowance freezes

Some of the tax allowances and thresholds will not move for years, meaning more and people are captured by them. This means more for the treasury coffers... in stealth tax.

There are no changes to the income tax rates. The personal allowance will rise in line with the September CPI figure to £12,570 for 2021/22. The higher rate threshold for English, Welsh and Northern Irish taxpayers will increase to £50,270. These will then be frozen at this level until 5 April 2026. So that's 5 years where average incomes will rise and more earners will fall into the bracket of Higher Rate Taxpayer.

Despite rumours before the budget, there will be no changes to Capital Gains Tax rates. The individual CGT annual exemption remains frozen at £12,300 until 5 April 2026 and the trust annual exemption will continue to be £6,150. Again, as we see the anticipated growth the Chancellor is aiming for, this could be lucrative for him. There is still some merit in the proposal to reform CGT in line with income tax, so don't be surprised if this happens at a future date.

Another example of a freeze is the lifetime allowance (the maximum amount of benefits an individual can take from their pension savings before they incur a tax charge). This remains fixed at £1,073,100 until 5 April 2026. It seems high, but as wages rise and pensions grow the number of people affected by this will increase, including those with defined benefit pension schemes.

The Inheritance Tax threshold has been £325,000 since April 2009 and again has not moved. Each year, more and more estates are liable to this tax as it becomes lower in real terms.

The recurring theme was fix and freeze. With the exception of corporation tax, there are hardly any changes to rates of tax. The commitment to leave thresholds and allowances where they are, rather than increase them in line with inflation, will go some way towards funding the economic black hole created by Coronavirus.

Our Director of Financial Planning, Roger Jackson, says, "The marginal gains from making use of every single tax allowance mean financial planning is more important than ever. It's really important that couples and families work together to make the most of the available allowances."

As ever, if there is anything you would like to discuss on the back of the Budget or your finances in general, we're always here to help.

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