The Chancellor, Rishi Sunak, has unveiled his Budget. And, as expected, the contents of the Government’s annual spending plan focus on encouraging recovery and growth.
There are some tax-raising measures, mainly aimed at companies. But this is no surprise, given the financial help businesses have received over the last 12 months because of the Covid-19 pandemic.
As predicted, the Chancellor has steered clear of announcing significant changes to the tax system in this year’s Budget. But he warned the UK can’t allow its debt to keep on rising in the long-term.
The Budget: a summary
The Chancellor said his immediate priority continued to be supporting the people hardest hit, with extensions to furlough, self-employed support, business grants, loans, and VAT cuts. The measures bring the Government’s total financial support in response to the pandemic to more than £407 billion.
Mr Sunak also set out plans to help the public finances recover by boosting jobs, growth and investment. And he spoke of the tough choices needed to put the economy on a more sustainable path.
Here, we look at the main tax areas that feature in the Budget…
Income tax
The income tax personal allowance and the higher rate threshold will increase next month, as planned, and will stay at that level until spring 2026.
So, in April this year, the point at which you start paying income tax will rise to £12,570, while the higher rate threshold will go up to £50,270. These levels will then be frozen until April 2026.
Corporation tax
The rate of corporation tax will increase to 25% in April 2023. But businesses with profits of £50,000 or less will continue to be taxed at 19%.
A tapered rate will also be introduced for profits above £50,000, so only businesses with profits of at least £250,000 will be taxed at the full 25% rate.
Stamp duty
The stamp duty holiday has been extended, which means you won’t have to pay Stamp Duty Land Tax (SDLT) if you buy a home worth up to £500,000 before the end of June 2021.
Then, from July 1, the first £250,000 of your purchase price will be exempt from the tax, and this allowance will return to its pre-pandemic level of £125,000 from the start of October.
Capital gains tax
The capital gains tax (CGT) annual exemption will remain at £12,300 until April 2026.
Inheritance tax
Despite speculation before the Budget, there were no changes announced for inheritance tax (IHT).
The tax-free allowance for individuals will remain at £325,000 until April 2026, so you won’t be required to pay any tax on the first £325,000 of your estate – the nil rate band (NRB).
And if you’re giving away a home to a direct descendant, there is an additional allowance called the residence nil rate band. This will stay at £175,000 until April 2026, while the residence NRB taper will continue to start at £2 million.
VAT
To support businesses in the tourism and hospitality industries, the Government has extended the temporary 5% reduced rate of VAT until 30 September 2021.
After that, a 12.5% rate will apply for a further six months, until 31 March 2022, to help businesses prepare for the reintroduction of the standard rate.
Be prepared for tax reforms
It’s inevitable there will be significant changes to the tax system over the next few years because of the level of spending during the coronavirus pandemic.
The tax reforms could include changes to inheritance tax and capital gains tax, and the possible introduction of a new wealth tax. And that’s why it’s important for you to take every opportunity you can to plan your affairs ahead of this.
Unfortunately, there will be a period of financial uncertainty for several years to come, until we establish a new normal in the economy and in the world generally.
But for now, taxpayers can breathe more easily.
If you need professional tax advice, call our team today on 01902 585 311 or email stephanie.churchill@churchilltaxation.co.uk
