Budget 2021 tax changes: What you need to know

Budget 2021 has been announced. Unsurprisingly, given the ongoing pandemic, a large part of the Chancellor’s speech was focused on the continued provision of Government support. If there are to be any tax rate rises, in order to assist in repaying the huge levels of Government borrowing/copying with a smaller economy, they have generally been left for another day. Nevertheless, there was some tax contained within the speech – and where individuals and families are concerned, here is our summary.

Income tax

As previously announced, the 2020/21 personal allowance will rise to £12,570 as from 6 April 2021, whilst the 40% higher rate band will rise to £50,270. Both increases are in line with the Consumer Price Index. However, the announcement in the Budget is that, thereafter, these amounts will be fixed until at least April 2026.

The annual ISA subscription for an adult (ie the amount which an adult can invest, without paying any income tax or capital gains tax on the income and growth generated by the investment) is to remain frozen at its current level of £20,000. Similarly, the Junior ISA annual subscription level will remain at £9,000.

The lifetime allowance for pensions (ie the total amount which most individuals can hold in pensions, without incurring a lifetime allowance tax charge) is to remain frozen at its current level of £1,073,100. Again, this is until at least April 2026.

Capital gains tax (CGT) and inheritance tax (IHT)

Similarly, the thresholds for CGT (£12,300) and IHT (£325,000 & £175,000) will also be frozen until at least April 2026. Given that the £325,000 IHT threshold has remained frozen since April 2009, this will ultimately mean 17 years of no change.

(For most trusts, the CGT threshold is £6,150 rather than £12,300. This too will be frozen.)

Stamp duty land tax (SDLT)

Back in July, the Chancellor temporarily extended the 0% threshold for SDLT to £500,000, in relation to certain residential property acquisitions. Such an extension was due to end at the end of this month, ahead of reverting back to its original level of £125,000. It has been announced in the Budget that this “SDLT holiday” will now continue until the end of June. Furthermore, rather than go straight back down to the original threshold of £125,000 as from 1 July, this will instead only happen as from 1 October. For July, August and September, the threshold will be of new amount, £250,000, in order to smooth the transition from £500,000 back down to £125,000.

Tax consultations

Although not strictly in relation to the Budget, it is worth noting that last month it was announced by the Treasury that various tax consultations will be published in a paper on 23 March. We don’t yet know exactly what the consultations will be – but the contents of paper could provide a degree of insight into potential future tax policy.