Swift Headline
Latest News and Updates

Budget 2021: What it means for your money

Chancellor Rishi Sunak promised that reducing taxes would be “my mission over the remainder of this parliament” setting out new fiscal rules in Wednesday’s Budget designed to get the UK economy back on track, reduce borrowing and keep spending in check.

With a focus on “levelling up” rather than headline-grabbing giveaways, the chancellor said fiscal prudence was the best way of avoiding “higher taxes tomorrow” — but as the cost of living bites, he managed to find scope for a £2bn tax giveaway for the lowest paid.

Here is a summary of how the key measures will affect your personal finances:

Tax

The key tax change — a manifesto-breaking pledge to raise the rate of national insurance to fund social care — was revealed long before the Budget and barely got a mention in the chancellor’s speech.

From next April, it will increase by 1.25 percentage points for employed and self-employed people earning more than £9,568.

A similar increase will also apply to employers’ national insurance payments. From April 2023, the higher NICs rate will apply to people working beyond the state pension age.

The Treasury had also previously announced an increase in dividend tax — which will rise by 1.25 percentage points from April 2022.

However, a feared shake-up to capital gains tax failed to materialise. There were also no major tax changes affecting the self-employed, despite a suggestion by the chancellor last year that they would need to contribute more in tax for the support they received during the pandemic.

Employment

The chancellor promised to give Britain a pay rise, confirming that the level of the national living wage would rise to £9.50 next April, and paved the way for public sector pay increases for 5m workers next year — although it is not yet known if these will outstrip inflation.

The national minimum wage for people aged 21-22 will increase from £8.36 to £9.18 an hour, while the apprentice rate will increase from £4.30 to £4.81 an hour.

However, the real surprise was cutting the universal credit taper to “make work pay” for millions more working families. Currently set at 63 per cent, the taper reduces universal credit by 63 pence for every pound earned above a certain threshold. The chancellor will reduce this to 55 per cent by December 1 this year, and increase work allowances by £500.

He claimed this would help 2m working families who would be better off by £1,000 a year on average.

© Clare Mallison

Property

There were no changes to the headline rates of stamp duty, as Sunak focused his fire on measures — several of which had been previously flagged — to encourage housebuilding and solve the cladding crisis.

A £11.5bn fund to boost construction of new homes was confirmed as part of the Affordable Housing Programme, attached to a pledge to build 180,000 affordable homes, while a £1.8bn fund will make 1,500 hectares of brownfield sites and derelict homes available for new homes.

A £2bn cladding tax on developers was announced as a way of helping leaseholders stranded in unsafe buildings and facing unaffordable costs to renew them. Developers will be hit with a 4 per cent levy to contribute to cladding solutions, where they earn profits of more than £25m.

Pensions

The chancellor resisted the urge to tinker again with savings allowances, which govern how much can be paid into, or grow, in a pension before tax charges apply.

The lifetime allowance remains frozen at £1.073m, a level which will remain in place until 2025/26.

The standard annual savings allowance remains at £40,000. However, this may be reduced or “tapered” down to as low as £4,000 for individuals whose ‘threshold income’ (annual income before tax less any personal pension contributions) is more than £200,000.

The Treasury also unveiled proposals to top-up pensions of millions of low-earning savers.

Currently, due to a tax anomaly, those who save into their pension via net pay arrangements (NPA) cannot receive a tax bonus on their contributions if they earn less than the personal allowance threshold.

In the Budget documents, the Treasury set out plans to pay a 20 per cent end-of-year top-up, which will apply to contributions made from the 2024-25 tax year onwards.

The government estimates the move will result in an estimated 1.2m individuals potentially benefiting by an average of £53 a year.

Savings and investments

With no changes to allowances on Isas (individual savings accounts), the launch of the inaugural green savings bond for retail investors was the most significant news for savers.

To be launched by National Savings & Investments, the government-backed savings scheme, the bonds will raise money for the government’s environmental spending agenda and form a key part of the green finance plans laid out by the chancellor in the March budget.

However, personal finance analysts have warned that the 0.65 per cent interest rate on offer may be too low to compete with rival savings products on the market.

The chancellor also warned that inflation was likely to rise, a key concern for investors. Inflation is set to average 4 per cent over the next year, according to the Office for Budget Responsibility’s forecasts, Sunak said.

He cast the rise in inflation as a global phenomenon driven by supply chains and energy supplies struggling to cope with surging post-Covid demand. “The pressures caused by supply chain and energy prices will take months to ease,” he said.

Cost of living

A planned rise in fuel duty has been cancelled in the wake of rising petrol prices, which the chancellor claimed would save £15 on the cost of filling up the average car.

However, there were no extra measures to help households struggling to pay winter fuel bills.

The “feelgood factor” of the Budget was a huge shake-up of alcohol duty, which will reduce taxes on English sparking wine, rosé, fruit ciders and draught beer.

The chancellor promised this would help British pubs, although some pub groups have already warned the costs of wage increases could add 30 pence to the cost of a pint.

Reporting by Claer Barrett, James Pickford, Emma Agyemang, Josephine Cumbo and Joshua Oliver

How the experts saw it

Nimesh Shah, chief executive of accountancy firm Blick Rothenberg

Nimesh Shah

That’s what happens when you have two Budgets in a year — you run out of things to talk about. Rishi Sunak had already given us the bad news — the freezing of personal allowances, an increase to corporation tax to 25 per cent and the £114bn health and social care levy.

Previously announced bad news on tax and a stronger than expected economic recovery gave Sunak an opportunity to flex his fiscal muscles. This he did by momentarily loosening the purse strings for infrastructure investment and limited extensions to business incentives.

The chancellor proclaimed this a Budget for working families. It wasn’t. A family of four with one working parent earning £62,000 will be £649 worse off a year from 2022-23 than in 2010-11, with all the tinkering to rates, allowances and thresholds.

There was good news for someone selling a second home or buy- to-let property as they now have 60 days to report and pay capital gains tax — it was 30 days — but it really should be 90 days. The Budget next March will offer a lot more and I’ll be tuning in again.

Christine Ross, a client director at Handelsbanken Wealth & Asset Management

Christine Ross

The fact that the chancellor chose not to make changes to the taxation of pensions will be a relief to many. The recent suggestion by the Institute for Fiscal Studies that the current pension death benefit regime is too generous will have had many savers nearing or at retirement holding their collective breath.

Currently defined contribution pension savings can be passed to beneficiaries free of all taxes in the event of death of the member before age 75. On death after 75 the beneficiary pays tax at their own rate when drawing funds. In neither case is inheritance tax payable. This benefit remains in place, to the relief of those transferred out of defined benefit pension schemes.

It is good news that there were no tweaks to pension rules overall, which only serves to disincentive pension savers. In fact the raising of the minimum wage will bring many more people into auto-enrolment.

A tidy-up of inheritance tax reliefs also appeared to be on the cards although the recommendations published by the Office of Tax Simplification are now two years old. The proposed measures included the replacement of the various annual gifting exemptions with a single annual allowance. This would have had the greatest impact on those gifting their surplus income either from earnings or investments.

Michael Martin, private client manager at Seven Investment Management

Michael Martin

The expected tax shake-up has not happened. With an uncertain winter ahead, we needed an upbeat Budget.

Changes to capital gains tax flagged in the white paper published in better times are still anticipated. But this is where the October Budget is awkward. It is very difficult make large tax changes in the middle of a tax year. But these must be in the pipeline, so be prepared for an announcement in March 2022, with potentially a year’s window to crystallise gains (in a boost to the exchequer) before the higher tax rate comes in.

The most interesting aspect for me was Sunak’s “more than 4 per cent inflation” comment. Try to work out your own personal inflation — it’s usually much higher than those announced. At an official 2 per cent rate many of my clients were running at 6-7 per cent, so this is the biggest concern.

As a drinker of fruity ciders it is a great Budget for me, which is not something I thought I would be writing today. But the message of this Budget is that people can carry on as they were, which I’m sure was the chancellor’s intention.

Ayesha Ofori, property investment specialist and founder of PropElle Network

Ayesha Ofori

Sunak unveiled a 4 per cent property developer tax — the Building Safety Levy — to help fund a £5bn programme to replace unsafe cladding for leaseholders. While the tax rate was new information, I think developers — or those with profits over £25m, who will pay it — have had time to brace themselves, as suggestions of such a tax have been in the offing for months.

Does it seem fair? It seeks to obtain contributions from those companies who can most afford it and arguably contributed to the problem — so I think it is reasonable.

Is it too complex to implement effectively? This is less clear. Accountants and tax advisers will be rolling up their sleeves as they think through different ways in which declaration of profits can be (legally) massaged to reduce the tax liability.

Finally, will it raise the amount expected? It is expected to raise £2bn over 10 years, compared with a £10bn cost mooted by campaigners. So it is likely to play only a bit part in resolving the crisis. If it does not live up to expectations, I fear the begging bowl to cover any shortfall is likely to end up at the taxpayers’ table.

Read original article here

Denial of responsibility! Swiftheadline is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – admin@swiftheadline.com. The content will be deleted within 24 hours.

Facebook Notice for EU! You need to login to view and post FB Comments!

Leave a comment