In his budget speech, Chancellor Rishi Sunak set out a three-part plan to “protect jobs and livelihoods of the British people”.
The measures announced, will take the total amount spent on supporting jobs and the recovery during the covid-19 crisis to a staggering £407bn. This will be followed by £25bn a year of corporate tax and income tax rises by the middle of the decade.
‘Going long’ – Covid support measures
Among his key measures, the chancellor announced:
- An extension to the furlough scheme until the end of September and more support for the self-employed.
- The £20-a-week uplift in Universal Credit will continue for another six months.
- 5% temporary VAT for hospitality extended to the 30 September, and then 12.5% until April 2022.
- £5bn in restart grants for shops and other businesses forced to close.
The chancellor announced that corporation tax would jump from 19 to 25% in 2023, a much sharper increase than expected, as the government tries to get to grips with the cost of its spiralling pandemic debts.
But, in an eye-catching move, Mr Sunak unveiled a two-year ‘super deduction’ scheme to allow companies to reduce their tax bill by 130% of the cost of new investments.
A new small profits rate will maintain the 19% rate for firms with profits of £50,000 or less, meaning that about 70% of companies – 1.4 million businesses – will be unaffected by the tax hike.
What it means for your money
It was interesting to see what wasn’t announced in the Budget as much as what was. Conservative manifesto promises meant no rise in the rates of income tax, national insurance, or VAT.
Instead, the most notable Budget changes were freezing key tax thresholds till 2026 – a back-handed way of raising taxes, as wage inflation and asset price inflation increase the number of people pushed over the thresholds at which you have to pay more tax.
Pension lifetime allowance frozen
The Chancellor said the LTA would remain at its current level of £1,073,100 for 2020/21 rather than increasing in line with inflation. It had been expected to rise by £5,800 in 2021/22, in line with the 0.5% (Sep-20 figure) Consumer Prices Index.
More pension savers will be impacted, including those on defined benefit pensions as well as those on defined contribution pensions. With the minimum pension age also expected to increase to 57 from 55 by April 2028, you might have to wait longer to access your pension and risk inadvertently exceeding your allowance.
CGT & IHT
Tax thresholds for inheritance tax (IHT) and capital gains tax (CGT) are also frozen until 2026. The expected overhaul for CGT and IHT is yet to come.
The stamp duty holiday (on houses below £500,000) is to be extended by three months to the end of June, and then phased out until the nil rate band returns to £125,000 from October. The government will also provide a guarantee for 95% mortgages and several banks have already signed up to offer these loans from next month.
ISAs & JISAs
There was no change to the thresholds for Individual Savings Accounts (Isas), with annual savings limits held at £20,000 for adults and £9,000 for Junior Isas (Jisas).
All alcohol duty has been frozen for the second year in a row, and a planned increase in fuel duty has also been cancelled.
The government is also lifting the legal limit on contactless card payments from £45 to £100 in a move to make shopping easier and boost struggling high street retailers.
The Chancellor announced a ‘world-first’ green savings bond for retail investors wanting to protect the environment. Available via National Savings & Investments (NS&I), the green bond will be used to raise funds to invest in projects such as renewable energy and clean transport to help the UK’s transition to net zero emissions.
He also wants the City to become a leader in the carbon offset market and launched a new infrastructure bank to spearhead green investment projects. Further details will be set out in the coming months.
Get in touch
If you’d like to know more about the changes announced and how this might affect you, please get in touch today.