For all the speculation and hype surrounding this Budget, in the end, as most of the big announcements were trailed in advance, there were few surprises. The chancellor stressed time and again his intention to be honest and act responsibly as the man in charge of the country’s public finances.
He ended his speech by saying it was a moment of “challenge and change” for the country. The test for the Government now will be how well the Chancellor’s policies meet that challenge and the impact of the changes that he’s made.
Inheritance Tax (IHT)
The decision to maintain the Nil Rate Band (NRB) and Residence Nil Rate Band (RNRB) at their current levels could see an increasing number of estates exceeding these thresholds if asset values continue to rise. This would result in more estates becoming liable to inheritance tax or ceasing to qualify for the RNRB.
The NRB has been at £325,000 since 6 April 2009. It is not surprising that there are no plans for this to rise in the coming five years. The RNRB was introduced in April 2017 and, though it offers welcome relief from inheritance tax for smaller estates, it is a poorly understood and an unnecessarily complicated relief. It is disappointing that the Chancellor did not take this opportunity to merge the two bands together and remove the unnecessary complexity. However, with further HMRC consultation documents expected on 23 March, I expect wider changes to the inheritance tax system may still be on the cards.
Capital Gains Tax (CGT)
After much pre-Budget speculation around potential increases to CGT, and a possible wealth tax, which had many clients implementing pre-budget planning, surprisingly few capital taxes announcements were included in the 2021 Budget. The Annual Exempt Amount (AEA) for individuals and trustees will remain at current 2020/21 limits of £12,300 and £6,150 respectively until the 2025/26 tax year. Arguably the freezing of the AEA is a ‘stealth’ increase in CGT. That said, however, it is likely to impact a much smaller number of taxpayers than the corresponding freezing of income tax thresholds.
The Conservative manifesto said that income tax would not rise. Whilst Income tax rates remain unchanged, by freezing the threshold at which people pay the basic and higher rates of tax there will be many people who get a pay rise and find themselves paying more in tax as they will be dragged into a new tax band. The level of individuals’ taxable income may well increase over the coming years, potentially significantly if the country experiences a period of high inflation. The fact that these bands are frozen will mean that more taxpayers may start exceeding their personal allowance, and others will start to become higher rate taxpayers.
Stamp Duty Land Tax (SDLT)
On 8 July 2020, the Chancellor announced that the SDLT nil rate band, being the first slice of consideration on which the SDLT rate is 0%, would increase from £125,000 to £500,000. This was intended as a temporary measure and was planned to end on 31 March 2021.
As widely trailed before the announcement, The Chancellor has now confirmed that the nil rate band will remain at £500,000 until 30 June 2021. It will then reduce to £250,000 from 1 July 2021 before returning to £125,000 from 1 October 2021.
The extension of the stamp duty holiday will clearly provide relief for people buying and selling homes. The three-month taper until October 2021 will make any cliff-edge in June feel less steep but I would still expect to see a surge in activity to capitalise on the SLDT saving.
The hike in corporation tax in one leap has caused a sharp intake of breath for many businesses. The main corporation tax rate will remain at 19% until 1 April 2023, when it will increase to 25% for companies with profits over £250,000. Any assumption that the UK was to be Singapore on the Thames has now been swept away. A rise in corporation tax rates was widely expected, but nevertheless hearing a conservative Chancellor increase rates (albeit this will not come into effect until the financial year starting 1 April 2023) will have been a shock to many.
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