Given the financial toll of the measures put in place during the pandemic it is natural the government now seeks to re-evaluate its finances including existing levels of both taxation and reliefs. It has now been announced that one of the main ways it will do this is a freeze on the personal tax thresholds:
Income tax rates set until 2026
While the Conservatives are standing by their promise not to raise income tax, this freeze does remove the opportunity to benefit from incremental increases in line with inflation.
The threshold for paying the basic rate will rise to £12,570 next year.
For higher-rate payers, the threshold will be £50,270.
Both rates will then stay the same until 2026.
While a pension pot of £1,073,100 may feel like a significant sum of money, it has to last throughout retirement.
A freeze to the LTA this year may only affect a relatively modest number of taxpayers. But each year the allowance fails to keep pace with inflation it is a step closer to LTA charges affecting ordinary pension savers.
Capital Gains Tax
The Chancellor also revealed he will freeze the annual exempt amount for Capital Gains Tax until April 2026, leaving them at £12,300 for individuals and £6,150 for most trusts.
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.
Corporation tax will rise to 25% in 2023
Rishi Sunak says in 2023 he will raise corporation tax to 25% for companies with profits exceeding £250k. Companies generating profits of less than £50k will continue to pay at a rate of 19% with those in between those rates being eligible for relief from the full rate; adding that the UK will still have lowest corporation tax in the G7.
The UK tax system remains complex
The freezing of the various thresholds means that your personal allowances will not grow with inflation. This may see more people facing tax charges or facing increased charges than before.
If you feel you may be impacted, seek advice from your financial planner. Our Planners will continue to monitor the UK tax landscape and can help to ensure that you don’t pay more tax than you need to.
Watch our Budget 2021 analysis
Join our team as they analyse the Budget announcement and breakdown what it means for you and your finances. They also delve into the currently economic climate and what it means for investing.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Laws and tax rules may change in the future. Your own circumstances also have an impact on tax treatment. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in March 2021.