On Wednesday last week the Chancellor, Rishi Sunak, outlined his budget. Our colleagues at M&G technical team were all over the details.
Along with the Spring Budget and the “mini-budget” of the dividend tax and National Insurance increases, we now know what the next little while looks like for investors.
The Chancellor delivered his “big freeze” budget on 3rd of March 2021. The key announcements affecting the financial planner was a much-anticipated change to Corporation Tax and a freezing of tax bands and allowances until 2025/26.
The chancellor announced lifetime allowance (LTA) limits for pensions savings will be frozen at £1,073,100 until 5 April 2025. Nothing was announced for annual allowance (AA) rules which means the standard AA remained at £40,000, the Tapered AA between £4,000 and £40,000 and the Money Purchase AA at £4,000.
In relation to corporation tax, the Chancellor announced the rate will remain at 19% for the years starting 1 April 2021 and 1 April 2022 but from 1 April 2023, the headline (i.e. main) corporation tax rate will be increased to 25% applying to profits over £250,000. Note that these measures do not impact the 20% ‘tax credit’ on UK bonds available to individuals, trustees and corporate investors.
With effect from 6 April 2021 the Personal Allowance and higher rate threshold (HRT) increased in line with CPI to £12,570 and £50,270 respectively and will remain at these levels until 5 April 2026.
The dividend nil rate allowance, the 0% starting rate for savings or the personal savings allowance were also frozen at 2020/2021 levels.
National Insurance Contributions (NICs) thresholds increased in line with CPI from 6 April 2021, bringing the NICs primary threshold/lower profits limit to £9,568 and the upper earnings limit (UEL)/upper profits limit (UPL) to £50,270, in line with the income tax higher rate threshold. The UEL/UPL will then remain aligned with the higher rate threshold at £50,270 until April 2026.
The CGT annual exempt amount (AEA) will remain at £12,300 for the next five years for individuals and personal representatives. For most trusts, the limit will be £6,150.
In relation to inheritance tax, both the nil rate band and residence nil rate will remain at existing levels of £325,000 and £175,000 respectively until 5 April 2026. The residence nil-rate band taper threshold continues at £2 million.
Access the full article published on the Ascentric platform where you could find more information about the budget implications on pensions, ISAs and dividends.
*** Nothing in this article constitutes advice and all investments carry some level of risk. ***