Budget Summary

28/10/2021

In his Spring Budget, the Chancellor had already announced lifetime allowance (LTA) limits for pensions savings will be frozen at £1,073,100 until 5 April 2025.  No changes were announced for pension annual allowance (AA) rules which means the standard AA remains at £40,000.

For Corporation Tax, the Chancellor announced the rate will remain at 19% for the years starting 1 April 2021 and 1 April 2022 but from 1 April 2023, the headline (i.e. main) corporation tax rate will be increased to 25% applying to profits over £250,000.

With effect from 6 April 2021 the Income Tax Personal Allowance and higher rate threshold (HRT) increased in line with CPI to £12,570 and £50,270 respectively and will remain at these levels until 5 April 2026.

The dividend nil rate allowance, the 0% starting rate for savings or the personal savings allowance were also frozen at 2020/2021 levels.

The CGT annual exempt amount will remain at £12,300 for the next five years for individuals and personal representatives. For most trusts, the limit will be £6,150.

In relation to inheritance tax, both the nil rate band and residence nil rate will remain at existing levels of £325,000 and £175,000 respectively until 5 April 2026. The residence nil-rate band taper threshold continues at £2 million.

The “big freeze “ will see rising tax receipts so more tax planning will be needed.

Pensions – fixing the “Net Pay Anomaly”

The budget revealed the solution to the Government’s manifesto promise to fix the “net pay anomaly” where those that have income below the personal allowance obtain no tax relief on pension contributions to a net pay scheme (normally a company scheme), but those with the same earnings paying into a Relief at Source (RAS) scheme do.

The solution to this will apply from the 2024/25 tax year, and once the tax year is over those that are eligible (i.e. those with earnings below the personal allowance that have contributed to a net pay pension) will receive a “top up” payment equivalent to 20% tax relief for their pension contribution in the 2025/26 tax year.

Despite being called a top up, this will actually be a payment to the individual rather than enhancing the payments made to the pension. This will benefit an estimated 1.2m individuals by an average of £53 a year.

It means that at some point in the 2025/26 tax year (and beyond) these individuals will get a little bonus back from HMRC.

Increase to the rates of income tax applicable to dividend income

As announced on 7 September 2021, the government will legislate to increase the rates of income tax applicable to dividend income by 1.25%.

The dividend ordinary rate will be 8.75%, the dividend upper rate will be 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.

The changes will apply UK-wide and will take effect from 6 April 2022.

In England, revenue from this increase will help to fund the health and social care settlement announced in September.

No change though to the dividend ‘allowance’ which has been set at £2,000 since April 2018. Dividends within the nil rate are charged at 0% and this will remain the case.

National Insurance Contributions (NIC) rates and thresholds

Also announced on 7 September 2021, the government has legislated for a new 1.25% Health and Social Care Levy to fund investment in the NHS and social care.

The Levy will apply UK wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self Employed) NICs, and to the main and additional rates.

The Levy will NOT apply to Class 2 NICs or Class 3 NICs. The Levy will be effectively introduced from April 2022, when NICs for working-age employees, self-employed people and employers will increase by 1.25%.

From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age, and NICs rates will return to their 2021/22 levels. From April 2023, receipts from the Levy will go to those responsible for health and social care across all parts of the UK.

ISA and Child Trust Fund limits

As announced at Autumn Budget 2021:

The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000

The annual subscription limit for Junior ISAs for 2022/ 23 will remain unchanged at £9,000

The annual subscription limit for Child Trust Funds for 2022/23 will remain unchanged at £9,000.

 

If you would like more information on tax planning opportunities centred on your personal circumstances, please contact us >>

Written by Colin Caulfield | Director

Colin is a Chartered Financial Planner & Pension Adviser Of the Year Read more >>

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