Oyster Budget Summary 2021

Following Rishi Sunak’s Budget Speech yesterday, here is a high level summary of some of the announcements. If you do have any questions please do not hesitate to contact me.

I’ve seen a calculation that looks at the implied calculated costs of the ‘giveaways’ looking like some £70 Billion over the next few years, from the Furlough extension, to the Self-Employed support and the new ‘Super Deduction’ for businesses who invest in themselves.

Then as the ‘giveaways’ subside so the slow gradual clawback happens, totally some £70 Billion over the same period, mainly from frozen tax allowances and an increase in corporation tax.

If all assumptions are met the net difference is expected to be around about £5 billion either way. The chancellor will be hoping for a big splurge from the consumers as lockdown is gradually eased. The full affects of this are not expected to be felt until well into 2022.

From my perspective, repaying the substantial support given by the government during this pandemic has to start somewhere but delaying this until the planned and hoped for economic rebound has happened makes sense to me. Then as the corner is turned we can look to recover some of the tax payers spend and start to balance the books and attempt to reduce the huge government borrowing.

So here goes…

A Budget of giveaways. We saw an extension of furlough, grants for the self-employed and stamp duty holiday extension to name but a few. The Chancellors catch phrase of ‘whatever it takes’ was dusted off once again, Rushi Sunak said he wanted to be honest and paved the way for tax changes required to pay for the debt incurred due to the pandemic. The freezing of numerous tax thresholds and raising Corporation Tax to 25% from April 2023 for some companies was the main tax takeaway. It is only a matter of weeks until we see the tax consultations promised by the Treasury.

There is a definite feeling of fiscal drag and stealth tax.....

Income Tax

The income tax rates remain unchanged.

The Personal Allowance will rise in line with CPI as planned to £12,570 from April 2021 and will be then frozen until April 2026.

The basic rate band will increase from April 2021 by £200 to £37,700. This means that an individual with their full personal allowance available will begin to pay higher rate tax on income above £50,270 (£37,700 + £12,570).

The higher rate threshold will be uprated in line with CPI as planned in April 2021 but then is frozen until April 2026.

The starting rate for savings tax band will remain frozen at its current level of £5,000 for 2021 to 2022.

The net effect is that more people will pay income tax over the next few years due to this freeze and existing tax payers will see more of their income taxed.

Capital Gains Tax

The annual exempt amount on Capital Gains remains unchanged at £12,300 for individuals, personal representatives and some types of trusts and £6,150 for most trusts. This will remain frozen until April 2026.

 

Inheritance Tax

The Inheritance tax bands will be frozen 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.  

For example, a surviving spouse on their death (as long as they still own a main residence) will effectively have an extended nil-rate band (due to the combination of both bands working together) of £1 Million.

 

Corporation Tax

The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for profits under £50,000 will be 19% with relief for businesses with profits under £250,000 so that they pay less than the main rate of 25%.

 

Stamp Duty Land Tax

The Temporary Stamp Duty Land Tax (SDLT) has been extended and the temporary increase in the residential Stamp Duty Land Tax Nil Rate Band to £500,000 will continue to apply in England and Northern Ireland until 30 June 2021.

From 1 July 2021, the Nil Rate Band will reduce to £250,000 until 30 September 2021 before returning to £125,000 on 1 October 2021.

This coupled with the new mortgage stimulus detailed below should lead to a buoyant housing market and more opportunities for lower earners or younger people to get on the property ladder.

 

ISA allowances

The ISA allowances will be frozen at £20,000 and £9,000 for the Junior ISA for the 2021/2022 tax year.

The Lifetime ISA (LISA) withdrawal charge was temporarily reduced between 6 March 2020 and 5 April 2021 from 25% to 20% to help individuals access savings if needed during the pandemic. This means that LISA investors can withdraw their money for any reason over this period, only losing the government bonus earned on the amount they withdraw.

Still in Oyster’s opinion a great time to invest in a Stocks & Shares ISA before the market gets the economic boost expected post lockdown.

 

Registered pension schemes

The standard lifetime allowance (SLA)

The SLA for 2020/21 will not be increased between 2021/22 and 2025/26 (inclusive). Instead, it will remain at £1,073,100 throughout this period.

Before the change, the SLA for each tax year from 2021/22 to 2025/26 (inclusive) would have increased in line with any annual increase in the consumer prices index (CPI) to the September before the tax year started.  Without the change, the SLA for 2021/22 would have been £1,078,900.

As a result, members who are subject to the SLA, will pay a higher lifetime allowance charge on any crystallisation(s) which take(s) them above the £1,073,100 limit in 2021/22 to 2025/26 (inclusive). 

Based on estimated figures from the Office for Budget Responsibility (OBR), the SLA would be over £50,000 less in 2025/26 than it would have been if the SLA had not been frozen at the 2020/21 figure.

 

Mortgage Guarantee Scheme

Mortgage guarantee scheme - will be introduced April 2021. All buyers will have the opportunity to fix their initial mortgage rate for at least five years. The scheme is available for new mortgages up to 31 December 2022 and provides a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000.

 

Hopefully this easy to read and understand summary helps you decipher what Rishi has planned for us all.

 

Any questions please do get in touch as always?

 

Stay safe and see you all soon.

 

Michael