Stealth Tax, Not Wealth Tax: Budget 2021 - Our Experts’ Analysis
This Budget saw Chancellor Rishi Sunak attempt to balance the demands of the government’s Covid-19 response with the need to ensure the sustainability of the UK’s public finances. Reconciling calls for continued support with manifesto promises proved to be a delicate balancing act.
The pandemic dominated Budget announced new policies such as financial support for art venues, professional and grassroots sports, coupled with extensions to existing policies – including the furlough support scheme and stamp duty exemption on main properties. However, beyond increases to Corporation Tax from 2023, it seems that much speculation has not come to fruition.
Andrew Dixon, Head of Wealth Planning, sees an astute political manoeuvre – rather than headline-grabbing hikes or the introduction of a wealth tax, a series of freezes or “stealth” taxes will be used to plug the hole in public funding. The Chancellor can keep manifesto promises and let inflation do the rest…
Tax Implications: At A Glance
- Personal income tax allowance will rise with inflation to £12,570 from April 2021 and will then remain frozen until April 2026. This applies to the whole of the UK.
- The higher rate income tax (40%) threshold of £50,270, applicable from April 2021, will be frozen until April 2026. This applies to non-savings income in England, Wales and Northern Ireland. For savings income, this applies to the whole of the UK.
- The Pension Lifetime Allowance will be frozen at its current £1.073m until April 2026.
- Capital Gains Tax Annual Exemption (£12,300), Inheritance Tax Nil Rate Band (£325k) and the Inheritance Tax Main Residence Nil Rate Band (£175k) will be frozen at their current levels until April 2026.
- ISA (£20k) and Junior ISA (£9k) allowances will remain at their current levels.
- The threshold over which employees’ National Insurance applies will rise to £9,568 from April 2021 and will subsequently be frozen until April 2026.
- In April 2023, Corporation Tax will rise to 25% from its current rate of 19%. A small profit rate of 19% will be maintained on profits of up to £50k, with a tapered rate in place on profits between £50k and £250k, before the 25% rate applies.
“The UK Chancellor has reaffirmed election promises of no changes to Income Tax, National Insurance and VAT rates. However, with national debt levels at their highest since World War Two can such promises really be upheld during the current Parliamentary term? Rishi Sunak is undoubtedly a shrewd political operator – whilst the focus will be on corporation tax, many will be unaware of the full effect of freezing various allowances. For example, for those with pensions close to the Lifetime Allowance, it is important to review whether you need to take action to avoid a Lifetime Allowance Charge.
That Capital Gains Tax remains untouched will be a relief to many business owners. This is a direct contradiction of the proposal by the Office of Tax Simplification to change rates and cut the annual exemption (currently £12,300) to between £2,000 and £4,000.
Positioning the UK economy for growth, whilst reducing the deficit remains a delicate tightrope to walk. The horizon is uncertain and potential increases to other taxes remain on the cards.”
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