Budget 2021: Personal tax summaryby
Chancellor Rishi Sunak held to his manifesto promise not to increase income tax rates, but froze the personal allowance and other thresholds instead to raise funds through fiscal drag.
Faced with the financial impact of the pandemic, Chancellor Rishi Sunak opted not to impose immediate income tax increases, but sought a low impact, “stealth” approach by freezing the personal tax allowance at £12,570 until 2026.
During his speech to the House of Commons, Sunak explained the balance he was trying to strike between keeping the country’s eye-watering debts in check while paying close attention to affordability: “The fairest way to repair the long-term impact of the crisis on the public finances is to ask everyone to contribute, with the highest income households paying more.
“The Budget takes steps towards this by maintaining certain personal tax allowances and thresholds until the end of the forecast period.”
The changes to tax bands announced for 2021/22 will continue in force up to and including 2025/26. The personal allowance for income tax will increase to £12,570 for 2021/22 - equivalent to £242 per week and £1,048 per month.
The basic rate band widened by 0.53% in 2021/22, rising from £37,500 to £37,700, where it will remain until 2025/26.
In Scotland, the starter rate will rise to £14,667 and the basic rate will increase to £25,296. The intermediate rate will also rise to £43,662.
The top rate threshold for England and all three devolved tax regimes will remain frozen at £150,000.
The same restraint on NIC bands will apply with the:
- upper earnings threshold aligned with the tax personal allowance at £12,570; and the upper earnings limit aligned with the basic rate band limit at £50,270.
Profit carry back period extended
- At present, an unincorporated business, such as a sole trader or partner in a partnership, can claim to offset losses against their net income of the current or previous year, or both years. For trading losses made in 2020/21 and 2021/22, you will be able to carry back for a period of three years, with losses being carried back against later years first.
No changes have been made to private pensions taxation, for the first time since 2004. Despite rumours that the Lifetime Allowance (LTA) would be cut from its current level of £1,073,100, the Chancellor has confirmed that it will remain unaltered until April 2026.
Inheritance tax thresholds held
The Chancellor confirmed that inheritance tax nil-rate bands will also stay at existing levels until April 2026:
- Residence nil-rate band will continue at £175,000
- Residence nil-rate band taper will continue to start at £2m
Capital gains tax
The value of gains a taxpayer can realise before paying CGT will remain as is until April 2026:
- £12,300 for individuals, personal representatives and some types of trusts
- £6,150 for most trusts
Other thresholds and miscellaneous changes
- The 2021 Finance Bill will introduce a limited-time easement to the benefits in kind exemption for employer-provided bicycles.
- From 6 April 2021, the van benefit charge is reduced to zero for company vans that produce zero carbon emissions and which are available for an employee’s unrestricted private use.
- From 6 April 2021, the company van benefit which arises where a van is made available to an employee for private use will increase to £3,500.
- Gift holdover relief will not be available where a non-UK resident person disposes of an asset to a foreign-controlled company, controlled either by themselves or another non-UK resident with whom they are connected. This measure will apply to disposals made on or after 6 April 2021.
- The previous end date of the social investment tax relief of 6 April 2021 has been extended to 6 April 2023.
- This applies to investments in qualifying social enterprises and will allow income tax relief and capital gains tax holdover relief for investors to continue.