Freezing of tax thresholds
The Chancellor has announced that the tax free personal allowance and subsequent tax thresholds for the basic rate and higher rate bands will be frozen from 6 April 2021 until 5 April 2026, instead of being uprated in line with the Consumer Price Index annually. The increase of the personal allowance from £12,500 to £12,570 on 6 April 2021 will save taxpayers up to £14 of tax per year.
It is worth noting that whilst the Chancellor claimed that ‘nobody’s take-home pay will be less than it is now’, the proportion of income that workers will take home may in fact reduce, given the increase in minimum and living wages we see each year. Assuming that National Living Wage increases by a conservative estimate of 4% year-on-year until 2025/26, a full-time worker paid the NLV could see their annual tax liability rise from £960.90 to £1,549.80, or from 5.5% of their gross pay to 7.6%.
In addition, the Annual Exempt Amount for Capital Gains Tax will be kept at £12,300 until 5 April 2026 for individuals, personal representatives and some trusts, with most trusts maintaining a £6,150 Annual Exempt Amount. Much like with Income Tax, if inflation impacts the value of assets, a fixed AEA for the next five years could increase the proportion of assets that tax is payable on.
There were, however, no announcements in regards to changes in the rates of Capital Gains Tax, which had been anticipated. There were also declarations of no Income Tax or National Insurance rate increases in the Budget, however the freezing of these tax thresholds may very well have a proportional increase on tax liabilities in the next five tax years.
Stamp Duty Land Tax
One of methods used to stimulate the economy during the pandemic has also been given a roadmap of how to resume to normality. It has today been confirmed that the current £500,000 nil rate band for SDLT will continue until the end of June, with tapering the nil rate band to £250,000 until the end of September helping to ease the market back to the pre-Covid band of £125,000 from 1 October 2021. This gives people the opportunity to make tax savings of up to £15,000 and provides certainty towards tax in relation to home purchases. Notably, the use of an interim taper removes the potential cliff-edge that some were concerned about.
It seems that the Chancellor has valued the importance of the housing market in this Budget, providing support for buyers through the tapering of pre-Covid SDLT, as well as supporting first time buyers through mortgage guarantees with major banks offering 95% mortgages.
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