This year’s budget came at a vital moment for the government, as Rishi Sunak sought to strike the right balance between supporting the economy through the Covid-19 crisis and preparing to deal with the enormous debt burden that measures such as the furlough scheme have inevitably created.
But despite fears from some quarters of immediate and radical cuts to allowances and thresholds, what emerged from the red briefcase was somewhat more measured. Broadly, continued support for the economy in the near term with any fiscal pain deferred for future years.
The Office for Budget Responsibility (OBR) Economic and Fiscal Outlook Report offers limited causes for optimism amid some sobering numbers. The proposed further extensions to the virus-related rescue support will take its total cost to £344 billion. UK GDP fell by 9.9% in 2020, the largest decline in the G7. GDP is expected to grow by 4% in 2021 and reach pre-pandemic levels by 2022, this represents a higher rate of recovery than was forecast in November, largely a function of the faster than expected vaccine rollout. Marginally more positive forecasts for employment and peak government borrowing can also be largely attributed to the success of the vaccination effort.
So what were the key announcements from yesterday’s Budget?
- Income tax: The 2021/22 Personal Allowance increase to £12,570 will go ahead, the basic rate band to will move to £37,700 meaning a higher rate threshold of £50,270 – but then these figures will be frozen until April 2026. There were no changes to dividend allowance, personal savings allowance, starting rate band for savings.
- Pensions: The Lifetime allowance which is the maximum sum you can accrue in pension savings before you a liable to a tax charge, has been frozen at £1,073,100 until April 2026. Despite some commentators predicting changes to pensions tax relief, there were no other major changes to the pension rules.
- Capital gains tax: The CGT annual exempt amount has been frozen at £12,300 until April 2026. There was no change to the tax rates for CGT.
- Inheritance Tax: The Inheritance nil rate band has been frozen at £325,000 and residence nil rate band will remain at £175,000 until April 2026. Estates will see the residence nil rate band taper away once the estate value exceeds £2 million and this threshold will remain unchanged until April 2026.
- ISAs: The ISA subscription limit remains at £20,000 in 2021/22 and the Junior ISA and Child Trust Fund subscription limits remain at £9,000.
- Corporation tax: In 2023 the main corporation tax rate will increase to 25% but for companies with profits of no more than £50,000 the rate will remain at 19%. There will be a tapering of the rate for companies with profits over £50,000 but less than £250,000 so only companies with profits above £250,000 will suffer the full 25% rate.
- Fuel duty and alcohol duties are frozen.
- Coronavirus Job Support Scheme extended to September 2021 across the UK (employer contribution of 10% required in July and 20% in August and September).
- Self Employment Income Support Scheme (SEISS) has been extended to September 2021 across UK, with those who filed a tax return in 2019/20 now being able to claim for the first time.
- Stamp Duty Land Tax (SDLT) temporary cut in England and Northern Ireland has been extended until September 2021. The £500,000 nil rate band will be extended until 30 June 2021 then it will be set at £250,000 until 30 September 2021, only returning to its standard level of £125,000 on 1 October 2021.
- A new mortgage guarantee scheme to enable all UK homebuyers to secure a 95% mortgage on properties up to £600,000 with only a 5% deposit needed.