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.

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%

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.’

State pension payments will rise by 2.5 per cent next April

…the Department for Work and Pensions has confirmed.

From the 10th April 2017 the value of the flat-rate state pension, brought in earlier this year, will increase to £159.35 from the current rate of £155.60.

Under the Government’s controversial ‘triple lock’ manifesto commitment, the basic and new state pensions will rise in line with the highest of inflation, earnings or 2.5 per cent. 

Continue reading “State pension payments will rise by 2.5 per cent next April”