Budget 2021 Highlights

Here, we share the highlights of the 2021 budget. There’s both good and bad news in this most recent budget.

Well, it was an interesting budget with Rishi Sunak being unable to pull very few new rabbits out of the hat as most of what he said had already been leaked in the press beforehand, although some of the rumours did end up being unfounded, such as the reform of CGT which had been subject to much speculation.

The budget started with grim news: that estimates on borrowing are the highest figures seen outside of wartime, that the economy shrank by 10% in 2020, and that we were now on a long road to recovery.  Although there was some optimistic news that the OBR now forecasts that the economy is expected to grow by 4% in the coming year and by 7.3% in 2022 (although 3% down on what it should have been in five years’ time).

So what did the Chancellor announce that will start the long process of recovery?

Personal Allowance Increased

First, some good news: the personal allowance for income tax will go up to £12,570, and the higher rate threshold will increase to £37,700 – meaning that taxpayers won’t be subject to the higher rate of 40% until they have income of £50,270.

Frozen Allowances and Thresholds

The bad news is that the allowance and threshold are both then frozen until 2026.

The allowances/thresholds that stayed frozen at their current rates include:

• Capital gains tax annual exempt amount – frozen at £12,300 (until 2026)
• Inheritance tax nil rate bands – frozen at £325,000 and £175,000 (until 2026)
• Pensions lifetime allowance – frozen at £1,073,100 (until 2026)
• The ISA annual subscription – frozen at £20,000
• Junior ISAs and child trust funds – frozen at £9,000
• The Lifetime ISA – frozen at £4,000
• Dividend allowance and PSA – frozen at their existing levels

It’s important to realise that freezing allowances and thresholds might not feel so bad now, but if we look ahead 5 years, it suddenly doesn’t look quite so good. It will have an impact on many people, for example:

• The IHT nil rate band of £325,000 has not increased since 2009. If it had been increased by inflation since 2009, then it would, in reality, be worth closer to £425,000.

• Those that don’t pay higher rate income tax now might find they will be pushed into that bracket once a couple of pay rises have been received.

• The lifetime allowance for pension savings of just over £1m might seem like a lot of cash but for those people currently in their mid-50’s who have either been saving themselves into a pension pot for the last 30 years or been in generous employer schemes, they may find that if they continue to invest each month and receive decent investment returns, they are closer to hitting that figure than they ever thought possible by the time they reach retirement age.

Corporation Tax

There had been much speculation about changes to corporation tax and so the main rate being increased was no great surprise; although, this won’t happen until April 2023 and only for those companies making profits of more than £50,000 (those with profits up to £50,000 stay at the existing rate of 19%).  For those with profits of at least £250,000, the rate will increase to 25% with companies with profits between £50,000 and £250,000 subject to a tapered rate.

One bit of news not leaked was that for two years from April 2021, companies that invest in qualifying new plant and machinery will be able to benefit from a super deduction capital allowance of 130% (for those that qualify for the 18% writing down allowance WDA) and those that qualify for the 6% WDA will benefit from a 50% allowance.  The idea behind this is to encourage companies to start spending the money they have sat doing nothing on their balance sheets to help boost the economy.

Stamp Duty Land Tax

Welcome news for many included the extension to the end of June of the exemption from stamp duty land tax on property purchase up to £500,000 (and even then, it doesn’t disappear, there will then be a £250,000 exemption, which will last until the end of September).  This was great news for those people at the mercy of solicitors and local councils, who are so busy with the number of purchases that the paperwork is taking far longer than normal, and were in danger of not hitting the previous end date of 31^st March.

Mortgage Guarantee Scheme

Homebuyers were also helped by the announcement of a new mortgage guarantee scheme to assist those with smaller deposits on homes worth up to £600,000; this will be for current homeowners as well as first-time buyers.

Extending the Furlough Scheme

Other welcome news included the extension of the furlough scheme to the end of September and the announcement that the fourth self-employed income support scheme will be at the current level of 80% and a fifth grant will cover May to September but at a lower level for those who have suffered less than a 30% drop in profits.  There was also good news for an estimated 600,000 self-employed people as they will now qualify for the fourth and fifth grants based on a filed 2019/20 self-assessment.

Hospitality and Tourism

There was also good news for the hospitality and tourism sectors, which will continue to pay the reduced rate of 5% VAT until the end of September and then a further reduced rate of 12.5% until the end of March 2022.  Grants and business rates relief were also announced to offer further help to these businesses that have been affected so badly by the pandemic.