Budget 2021 – Private Client Tax Update

Today marked the third time that the Chancellor, Rishi Sunak, has got to his feet in the Commons to set out his plans for government spending and taxation over the next few years. The first two such occasions were, necessarily, light on any changes to taxes, and instead focused on COVID support spending such as the Coronavirus Job Retention Scheme and the Self-Employed Income Support Scheme. This time was no different, despite a frenzy of speculation over recent months, and the Chancellor again focused on spending announcements, rather than any major changes to tax rates, with the exception of Corporation Tax.

This article therefore contains a first glance and summary of some of the major private client tax announcements – although is by no-means a full list – and you can read the full Budget document here for full details of the various measures introduced.

Income Tax

• The Personal Allowance will rise to £12,570 in April 2021, as previously announced, and then will be frozen at that level until April 2026; and
• The Higher Rate Threshold will similarly rise to £50,270 in April 2021 and then be frozen at that level until April 2026.

Capital Gains Tax

• The Annual Exemption with be frozen at the current level of £12,300 for individuals (for £6,150 for trusts) until April 2026; and
• Despite strong rumours, there were no announcements to any change in rate, but also no commitment to not increase rates in due course.

Stamp Duty Land Tax

• The £500,000 residential SDLT nil-rate band will be extended until 30 June 2021, and will reduce to £250,000 from 1 July 2021 until 30 September 2021, before it returns to £125,000 on 1 October 2021.

Inheritance Tax

• The IHT Nil-Rate Band remains frozen at £325,000 until April 2026; and
• The IHT Residence Nil-Rate Band will similarly be frozen at a maximum of £175,000 until April 2026, cancelling a planned CPI-linked rise.

Pensions

• The Lifetime Limit (£1,073,100) is frozen until April 2026.

National Insurance

• The Primary Threshold will be increased to £9,568 in April 2021 as previously announced; and
• The Upper Earnings Limit will similarly be increased, to £50,270 in April 2021, and will then be frozen until April 2026.

Corporation Tax

• Although not strictly a private client tax, arguably the major announcement on the tax side is that Corporation Tax will be increased to 25% from April 2023 on profits of over £250,000;
• A new small profits rate of 19% will be introduced on profits of less than £50,000; and
• The rate will be tapered for profits in between these two thresholds.

VAT & Duty

• The 5% reduced rate of VAT in the tourism and hospitality sector continues until 30 September 2021, followed by a small increase to 12.5% until 31 March 2022;
• The VAT registration and de-registration threshold will remain at £85,000 until 31 March 2024; and
• Alcohol and fuel duties remain frozen at the current level for the next year.

Support

There were a plethora of spending announcements, most of which are outside the scope of this private client focused update. However, brief highlights include:

• The Coronavirus Job Retention Scheme (“the Furlough Scheme”) has been extended to the end of September 2021 and employees will continue to receive 80% of their salary for hours not worked. However, employers will be required to contribute toward the cost from 1 July;
• The Self-Employed Income Support Scheme has also been extended to the end of September, although the final grant, covering the period from May to September, will be restricted for businesses where turnover has fallen by less than 30%; and
• From 6 April 2021, the government will establish a Mortgage Guarantee Scheme whereby they provide a guarantee to lenders for 95% LTV mortgages on homes with a value of up-to £600,000; and
• From 6 April 2021 the Recovery Loan Scheme will provide a guarantee to lenders on eligible loans to businesses between £25,000 and £10m.
• Finally, the government has announced that several Freeports will be established around the UK with the plan for them to begin operations from late 2021. These Freeports will contain areas where businesses will benefit from more generous tax reliefs, customs benefits and wider government support.

As ever, please do not hesitate to contact our Private Client teams if you would like to discuss how today’s announcement may affect your own position or planning.