Last month America’s consumer prices inflation rate rose to 4.2% from 2.6% and this is before the full effects of the Biden stimulus plans take affect. Eurozone inflation accelerated to 1.6% year-on-year in April, up from 1.3% in March, following a sharp rise in the cost of energy compared to the height of the pandemic. UK annual inflation meanwhile more than doubled in April to 1.5% from 0.7% in March, although both remain below central bank target rates of 2% for now.
Budget 2021 – details
The Chancellor of the Exchequer Rishi Sunak has announced that
the bill for addressing the coronavirus pandemic is currently £407bn, which is
equivalent to 10x HS2 projects or 20 Crossrail’s.
Tax thresholds
The key financial changes announced in the budget are as
follows:
The basic rate income tax threshold has been slightly increased from April 2021
to £12,570 from £12,500 and the high rate threshold to £50,270 from £50,000.
The thresholds will then stay at these levels for the following 5 years.
The inheritance tax nil-rate band will remain at the existing level of £325,000
and also the residence nil-rate band of £175,000 until at least 2026. The
residence nil-rate band taper will continue to start at £2 million.
The capital gains annual exempt amount has also been frozen at £12,300 until
2026.
Dividends also escaped. The tax-free dividend allowance has been kept at
£2,000.
Pensions
The pension lifetime allowance has also been frozen at £1,073,100 until 2026.
The state pension will however rise by 2.5% next tax year and the triple lock
will remain in place.
Property
The 0% stamp duty land tax holiday on the first £500,000 has been extended
until 30 June 2021. The threshold will then be reduced down to £250,000 for a
further 3 months and then return back to £125,000 from October.
Lenders have been withdrawing from providing low-deposit mortgages. Therefore
to help first time buyers the government is guaranteeing 95% loan-to-value
mortgages up to £600,000.
Companies
From April 2023 corporation tax will increase for companies with profits above
£50,000. Tapering from 19% up to 25% above £250,000. This will affect the UK
companies, but as it is progressive and can be offset by ‘super deduction’ on
business investment as companies investing can benefit from a 130% first-year
capital allowance.
IR35 changes delayed from last year will go ahead in April 2021. Companies must
now collect income tax and NIC from the contractor’s fee and pay it over to
HMRC.
The furlough scheme will be extended until October 2021. However, employers
will be asked to contribute 10% in July and increased to 20% in August.
The trading loss carry-back rule has also been extended from the existing one
year to three years.
The VAT reduction for the UK’s tourism and hospitality sector has been extended
until October 2021 and reduced rate of 12.5% will then be applied until April
2022.
Business rate reliefs have also been extended to July 2021 and then a reduced
rate of 66% until April 2022.
Chancellor splashes another £30b
UK Chancellor of the Exchequer Rishi Sunak pledged an additional GBP 30 billion to support employment, on top of the GBP 133 billion in coronavirus measures he has already unveiled. The money includes over GBP 5 billion in accelerated infrastructure spending, about GBP 9 billion for employers to retain workers through the end of January, funds for home insulation, and help for homebuyers and for hospitality firms.
Budget 2020
We have summarised Mr Sunak the new Chancellor’s 2020 budget for you.
- National Insurance (NI) threshold raised to £9,500 up from £8,632
- Pension taper increased to £200,000 from £110,000 – this helps pension funding restrictions
- Junior ISA annual limits increased to £9,000 from £4,368. Adult limit remains at £20,000.
- In the UK the income tax rates and allowances remain at £12,500 for the personal allowance and £50,000 the higher rate threshold
- The Capital Gains Tax (CGT) allowance has increased to £12,300 for individuals
- The Inheritance Tax (IHT) residence nil rate band increases to £175,000 taking the overall IHT allowance up to potentially £500,000 per person
- Entrepreneurs Relief lifetime allowance reduced to £1million
- Off-payroll working rules (IR35) reform still scheduled for April 2020
- Corporation tax rate to remain at 19%
Interest-only Mortgages
Yorkshire Building Society has become the latest big name to launch an interest-only mortgage. If you have a reasonable deposit saved up please give us a call.
Interest-only mortgages were once common but virtually disappeared after the financial crisis, amid fears that many borrowers were not setting aside enough money to repay their debt. Borrowers do not repay any capital during the course of the loan, so when their mortgage term ends they need to pay back their equity.
Under new lending criteria, borrowers have to show lenders that they have a repayment strategy in place.
There were twice as many interest-only products on the market earlier this month as there were six years ago, according to Moneyfacts.
Do you have any NI gaps?
Paying out for voluntary National Insurance contributions now could improve your state pension by up to £4,000 – but it’ll cost more if you wait until after 5 April 2019.
Anyone who reaches state pension age after 5 April 2016 and has a gap in their NI payments between the 2006-07 to 2015-16 tax years has until April 2023 to ‘plug’ the holes by making voluntary contributions. In the new tax year, the amount you pay for voluntary National Insurance (NI) will increase to a more expensive flat rate for all tax years. But, if you pay between £600 and £700 – the equivalent of £100 a week between now and April – you could pay off a missing year in your NI record and secure thousands of pounds of state pension when you retire.
Help for new mothers
From April, the government will rewrite child benefit forms to highlight the risks to stay-at-home parents’ retirement income if they fail to register for child benefit. The forms are available online and given to new mothers in hospitals.
Registering for child benefit allows parents with children under 12 to build up their entitlement to state pensions, even if they do not pay national insurance (NI) contributions.
However, a tax on child benefit for higher earners, introduced in 2013, has discouraged hundreds of thousands from claiming the perk. Since 2013, 516,000 parents have opted out of child benefit — 84% of them women.
About 1.1m families are affected by the tax charge on child benefit, which reduces payments when one parent earns £50,000 or more and wipes out the benefit for those who earn £60,000 and above. The rule applies to married and cohabiting couples.
Families with a higher earner can opt not to receive any child benefit. However, they still need to register and opt out. Parents who fail to do so miss out on the NI credits.
Entrepreneurs’ Relief (ER) – share disposal update
The 2018 Budget has caused significant concerns for shareholders in companies that have multiple share classes carrying different rights and entitlements (also known as alphabet shares).
The new proposed rules change the definition of ‘personal company’ in the ER legislation in such a way as to prevent shareholders in a company with alphabet shares from claiming ER.
On 21 December 2018, the Government proposed a significant amendment to the Finance Bill rules defining what constitutes a ‘personal company’ for ER purposes.
The revised legislation retains the old qualifying criteria (that the shareholder must have at least 5% of the ordinary share capital of the company and 5% of the voting rights) but adds in two new conditions, at least one of which will need to be met:
- The shareholder must be entitled to 5% of the profits available for distribution to equity holders and 5% of the assets available for distribution on a winding up (these were the changes originally announced in the 2018 Budget);
AND/OR
- In the event of a disposal of the ordinary share capital of the company the shareholder would be entitled to 5% of the disposal proceeds.
Additional provisions set out the process for determining whether the second test is met at any one time. The legislation does not define the term ‘proceeds’, which implies that it may extend to some payments made to debt-holders on a sale of a company.
In its rationale for making the changes, the Treasury has stated that it has laid these amendments to ensure that the conditions for benefitting from the relief operate as intended and to continue ‘supporting enterprise creation and growth in the UK.’
Stamp Duty Land Tax (SDLT) first-time buyers relief
…will be extended in England and Northern Ireland to apply to all first-time buyers purchasing residential property worth up to £500,000 through a qualifying shared ownership scheme. The relief will also apply to shared ownership property buyers who have already paid SDLT on the initial equity stake and rental amount since the introduction of the relief on 22 November 2017. They will have a year to make a backdated claim for the relief. This measure will be effective from 29 October 2018.
Currently lettings relief can be claimed by individuals who let out a property that is, or has in the past been, their main residence. From April 2020, the government will reform lettings relief so that it is only available to individuals in shared occupancy with a tenant.
Currently, the final period exemption means that people do not have to pay CGT on gains made in the final 18 months of ownership. From April 2020, the exemption will be reduced to 9 months. There will be no changes to the 36 months final period exemption available to disabled people or those in a care home.
Individuals who replace their main residence can reclaim the SDLT where the new home was purchased before selling the old, subject to the old residence being sold within 3 years of the new home purchase.
The residence nil-rate band (RNRB) increases to £150,000 from £125,000 from 6 April 2019 and to £175,000 from 6 April 2020; allowing some couples to leave up to £950,000 to future generations free of IHT.
EIS deferral relief
Capital gains tax arising on the disposal of any type of asset can be deferred by a subscription for EIS shares. To qualify for the relief the investment must be made during a period covering one year before the gain arose and three years thereafter.
The tax on any gain deferred in this way only becomes due on the subsequent disposal of the EIS shares or if the investor ceases to be UK resident within three years of issue of the shares. However, the gain can be deferred again by using the sale proceeds to make another EIS subscription.
There is no limit on the amount that can be invested in EIS shares but only the first £1,000,000 investment in a tax year will be entitled to income tax relief at up to 30% (for 2017-18).