2021 Autumn Budget Round up

In Rishi Sunak’s Autumn Budget we saw him focus on the post COVID economy, promising “a stronger economy for the British people” with a priority on high skills and high productivity. Recovery from the pandemic is faster than expected with economic growth (GDP) for this year revised to 6.5% from 4% and unemployment lower than expected.  In this In 2021 Autumn Budget Round up we look at how the budget could affect you.

Sunak also expects inflation to average 4% over the next year and forecasts a return to spending 0.7% of GDP on foreign aid before the end of this parliament. In his address he indicated to a “shared global problem which is neither unique to the UK, nor possible for us to address on our own”

The Office of Budget Responsibility expects the economy to return to pre-COVID levels at the turn of the year. We’ve put together a round-up of the key points and what it all means for you.

What we already knew

Income Tax

Income tax rates and allowances are unchanged.  This is in-line with the announcement in March 2021 that the annual allowance and basic rate threshold would remain frozen until April 2026.

Capital Gains Tax

• The annual exempt amount on Capital Gains remains unchanged at £12,300 for individuals, personal representatives and some types of trusts and £6,150 for most trusts. This will remain frozen until April 2026
• Property payment window – With immediate effect the time limit for reporting gains and paying tax on residential property gains will increase from 30 to 60 days

Inheritance Tax (IHT)

This remains unchanged.  It was announced in March 2021 that the Nil Rate Band (NRB) and Residence NRB both would remain frozen until April 2026 at £325,000 and £175,000 respectively.  The residence nil-rate band taper will continue to start at £2 million. The rates of tax are also unchanged, with the main death rate staying at 40%.

Corporation Tax

The changes to corporation tax were announced in March 2021 and remain unaltered.  The rate of corporation tax will increase from April 2023 to 25% on profits over £250,000. The rate for profits under £50,000 will be 19% with relief for businesses with profits under £250,000 so that they pay less than the main rate of 25%.

ISA Allowances

The Individual Savings Account (ISA) annual subscription limit will remain at £20,000 in 2022/23. The annual subscription limit for Junior ISAs and Child Trust Funds for 2022/23 will be maintained at £9,000.

The chancellor announced the creation of a new National Savings & Investment (NS&I) Green Savings Bond. These three-year fixed-term savings products will pay an interest rate of 0.65% and customers can invest between £100 and £100,000. The Green Savings Bonds come with a HM Treasury-backed 100% guaranteed.

Pensions

There was no significant changes to tax for registered pension schemes. The Pension related changes previously announced were:

Some 5 years after the ‘net pay’ issue for low earners was raised we now have a plan from the Government, albeit one that won’t be implement until April 2025, enabling lower paid earners that pay into a net pay scheme to claim a top-up on pension contributions they have made in 2024/25 and onwards. The process for claiming the top-up won’t affect how individuals save into a pension scheme. HMRC will contact impacted individuals following the tax year contributions were made offering them a top-up payment. It appears there will be no backdating of the top-up for contributions made in years before 2024-25 saving the Government significant sums. The Government confirm that the top-up payment could affect an individual’s entitlement to income-related benefits.

Regulatory charge cap for DC pension schemes

The Government will consult further on the charge cap, broadly 0.75% applied to default investment arrangements in DC automatic enrolment schemes, to unlock remaining barriers for DC institutional investment into illiquid investments, such as infrastructure projects, by accommodating certain performance fees that exist for these types of investment. This announcement follows the publication of regulations earlier this year by the DWP to help schemes invest in such long-term assets.

National Insurance

From April 2022, National Insurance rates for both employees and the self-employed will rise by 1.25% across earnings bands. Millions of employees and many employers will see their National Insurance contributions increase, raising around £12 billion a year for the Treasury.

The levy will be converted to an income tax and will be named the “Health and Social Care Levy” from April 2023, when National Insurance rates will return to their current levels.

From April 2023, anyone who is working beyond the State Pension Age will be asked to pay 1.25% on their earned income. Dividend Tax rates will also rise 1.25% from April 2022. The £2,000 allowance will remain, but anyone earning more than £2,000 in dividends will pay a higher rate of tax.

What we now know

Tax

The chancellor announced several reforms:

• A new 4% levy on property developers with profits of more than £25 million, to help fund a £5 billion fund to remove unsafe cladding
• A reduction in air passenger duty for domestic flights between UK airports from April 2023. 9 million passengers will see their duty cut by half, boosting regional airports. There will also be an increase in duty for long-haul flights of more than 5,500 miles
• The bank surcharge, levied on bank profits, will reduce from 8% to 3% from April 2023.
• The planned rise in fuel duty has been cancelled. The average car driver now saves £1,900 a year because of a 12-year freeze in fuel duty.

Housing

The chancellor announced an £11.5 billion fund to build up to 180,000 new affordable homes, 20% more than the previous programme. Confirming a £1.8 billion brownfield fund to create 1 million new homes.

Changes to the National Living Wage and Universal Credit

The National Living Wage (the minimum wage) for over-23s will increase from £8.91 to £9.50 an hour. This represents an increase of £1,000 a year for a full-time worker and more than 2 million people will benefit.

A change to the Universal Credit taper from 63p to 55p will be made before December 1st. With an increased work allowance by £500 a year to help working families with the cost of living..

Other spending announcements

Sunak unveiled a raft of spending commitments in areas from education to health.

• £21 billion on roads and £46 billion on railways
• A guarantee to spend £5.7 billion for London-style transport systems across city regions
• Spending on cycling infrastructure of more than £5 billion
• 20,000 new police officers, an extra £2.2 billion for courts and rehab facilities, and £3.8 billion for prison-building
• £300 million towards A Start for Life, supporting new parents, and £150 million for Early Years training and holiday programmes
• At least 100 places will benefit from the “levelling up” fund. The first round of successful bids to the fund, worth £1.7 billion, have been announced, including projects in Stoke-on-Trent, Bury and Burnley
• £500 million in funding to help people back into work in “the most wide-ranging skills agenda this country has seen in decades”. This includes careers help for older workers and builds on extra funding for apprenticeships and traineeships already announced in the spring.
• £205 million to transform grass-roots sport by funding up to 8,000 community sports pitches.
• £11 million towards the FA bid to host the 2030 World Cup.
• £2 million for a new Beatles attraction on the Liverpool waterfront.

In conclusion, Sunak confirmed that “my goal is to reduce taxes”, it’s “my mission for the remainder of this parliament”.

Any questions about the 2021 Autumn Budget Round up?

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“2021 Autumn Budget Round up”.  This article is for information only. Please do not act based on anything you might read in this article. This article is based on Innes Reid Investments interpretation of the relevant law and is correct at the date shown. While we believe this interpretation to be correct we cannot guarantee it.