In Focus: Tax  

Budget tax changes at-a-glance: What you need to know

Budget tax changes at-a-glance: What you need to know

Budget tax changes outlined by chancellor Rishi Sunak today (Wednesday 3) require a "careful" response from financial planners, according to commentators.

Setting out his three-point plan for Britain's economy, "redrawing the economic map", Sunak highlighted freezes to individuals' personal allowance threshold hikes as well as a higher tax take from the biggest corporations.

But with the highest level of borrowing since the Second World War, set to peak at 97.1 per cent of GDP in 2023/24, the government needs to take action to reduce this, commentators have said. 

Personal finance expert Claire Walsh said: "Is he really going far enough? Freezing allowances won't make much of a dent and the corporation tax increase [is] not until 2023."

Charles Stanley called for "careful planning" as the pensions lifetime allowance was frozen at £1,073,100.

It would otherwise be rising by over £5,000 in the next tax year, having previously been linked to CPI inflation.

Presenting his Budget, Sunak said: "In 2023 the rate of corporation tax, paid on company profits, will increase to 25 per cent.

"Even after this change we’ll still have the lowest corporation tax rate in the G7. We’ll also protect small businesses so only 10 per cent of companies will pay the full higher rate."

And of course, duties on alcohol have been frozen. 

For more details of the biggest tax changes see the table below (NB no Budget in 2019):

Tax2018 Budget2020 BudgetChanges in 2021 Budget 
Income tax and personal allowancesPersonal Allowance goes up to £12,500 from April 2019, one year sooner than was stated last year. The Higher Rate Threshold will be increased to £50,000 from April 2019.Gov't pledges to meet commitment to raising income tax personal allowance to £12,500 and the higher threshold to £50,000 by end of this parliament. Once it reaches £12,500, it will rise in line with CPI.

Personal Allowance tax threshold frozen. 

Basic rate income tax threshold will increase in 2021 to £12,570 and remain at this level until 2026. (£50,270 for higher rate).

 

 

Dividend taxNo changes mentioned; dividend allowance remains at £2,000.No changes mentioned.Remains at £2,000
Pension allowancesNo changes to the PAA mentioned. The lifetime allowance for pension savings will rise in line with CPI for 2019-20, rising to £1,055,000

Increase to earnings threshold of £90,000 for the tapered pensions annual allowance, meaning the threshold will now kick in at £200,000.

However, individuals who continue to be affected by the TAA will see their minimum TAA reduced from £10,000 to £4,000.

LTA rising in line with CPI as previous Budgets stated.

Pensions Lifetime Allowance to be frozen at £1.073m.

 

Capital gains taxWith regard to Entrepreneur's Relief, in addition to the current requirements on share capital and voting rights, from 29 October 2018 shareholders must also be entitled to at least 5% of the distributable profits and net assets of a company to claim the relief. This is to address an identified abuse of the current rules.

Only a change to entrepreneurs' relief.

Company founders can pay a discounted CGT rate of 10% when they sell their businesses, compared with the 20% rate typically applied, but their lifetime rate is being slashed by 90%.

No CGT hike, despite pre-Budget speculation to the contrary. Annual exemptions frozen until 2026.
Bank levyThe bank levy will reduce over the next six years to £1.1bn by 2023-24 New Economic Crime Levy introduced to combat white-collar fraud.Reviewing the surcharge to make sure banks will not be hit by higher corporation tax as well as the levy. 
Inheritance taxNo changes mentionedNo changes mentionedNil-rate bands frozen until 2026.
Corporation tax

To restrict use of tax carried forward capital losses from 2020-21 

Planned cut in corporation tax rate will not happen this year, but will remain at 19%

To rise after 2023 to 25 per cent. 

Will not affect the smallest companies; existing rate will apply to those with profits of less than £50,000 a year. 

Tax on savings interestNo changes mentionedJunior Isa and Child Trust Fund subscriptions will double to £9,000.

No new subscription hikes

National Insurance ContributionDelay NICs Bill by one year and maintain Class 2 NICs.

Government is increasing the threshold for when NI becomes payable to £9,500.

Changes to NIC allowances will save employees £104 a year, and self-employed individuals £78 a year. 

No changes

VAT Supporting businesses with VAT cut as part of Covid response.

VAT relief - still halved at 12.5 per cent to help retail and tourism industry in particular.

Will not revert to standard 20 per cent until next year. 

This should reduce VAT receipts this year by almost £5bn.

Stamp Duty Land TaxStamp duty is to be abolished for all first-time buyers in shared ownership properties up to £500,000. Gov't will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.An additional 2 per cent SDLT announced for foreign buyers from April 2021.

July 2020 stamp duty holiday, raising threshold from £125,000 to £500,000, now extended to the end of June 2021.

A £250,000 limit will continue until the end of September; thereafter will revert to £125,000.

A new Mortgage Guarantee for 95 per cent loans. 

Environmental taxes

Fuel duty had been frozen in 2020, but Sunak said he cannot commit to this in future given the risks to the environment. But in 2021 he said the planned increase would be cancelled due to the ongoing Covid-19 response.

Business rates and Restart 

In 2020, Sunak abolished business rates for one year as a result of coronavirus.

In 2021, said he would continue with this from April to June. For remaining nine months, a 2/3rds discount will be in place.

New restart grants for businesses to begin in April 2021 - £5bn of support planned on top of £20bn spent on existing cash grants so far. 

A new Small Profits rate for the smaller businesses to protect these from new Corporation Tax rate.

A new two-year 'super deduction' for businesses investing in machinery for growth allows them to reduce their tax bill by 130 per cent.

Entrepreneurs' relief

In 2020, the government said it would reduce the lifetime limit on entrepreneurs' relief from £10m to £1m; Sunak said he would not remove it completely. This remains in 2021.

 

 

simoney.kyriakou@ft.com