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Budget 2021: In review

By Martin O'Gorman, Pensions and technical Specialist, VitalityInvest

Published: 04/03/2021

The 2021 Budget

This year’s Budget was focused on the short-term support needs for people’s jobs and finances whilst acknowledging the need to address the size of government borrowing over the longer term.

At a time when government borrowing exceeds £2.1 trillion, almost 100% of GDP, the Chancellor has delivered a Budget headlining the acute damage done to the economy albeit expectations are for a swifter more sustained recovery over the next year. With that as a backdrop, this year’s Budget was rightly focused on the short-term support needs for people’s jobs and finances and seeking to kickstart the economy as we move out of the latest wave of lockdown measures.

Alongside a further £1.65 billion on the vaccination rollout programme, the Budget addressed a number of short-term demands whilst keeping one eye on the longer term need to recover the additional borrowing.

Covid recovery measures

Overall the Government has committed around £325 billion in various schemes to support the economy during the pandemic. The Budget has extended the Covid Job Retention Scheme (CJRS) and Self Employed Income Support (SEIS) as well as providing a range of Restart Grants for qualifying businesses as we move out of the latest set of lockdown restrictions.

Coupled with the continuation of the Business Rates Relief Scheme and further extensions to the trading loss carry-back relief provisions the Chancellor has committed an additional £65 billion to economic recovery measures.

Pensions, investments and savings

Alongside the proposals to support jobs and livelihoods the Budget delivered a number of initiatives to kick start the economy – the continuation of the nil-rate band exemption for stamp duty continues at its present rate until the end of June, the introduction of a new mortgage guarantee scheme for 5% deposit mortgages up to £600,000 and the launch of green National Savings and Investments (NS&I) investment products are welcome outcomes from the Budget.

The downside is that all of these initiatives will need to be paid for over time and alongside the introduction of a 25% corporation tax rate for profits over £25,000 almost all of the personal savings and investment thresholds and limits are being frozen from next year to 2026.

Personal tax rate thresholds will increase in April in line with the Consumer Price Index (CPI) but will then remain set for the next four years. Freezing the higher rate band means a further 800,000 people a year will fall into the higher rate tax bracket bringing in a further £1 billion in revenue a year.

Despite fears that tax relief would be at risk pensions were largely untouched but the Lifetime Allowance of £1,073,000, the Inheritance Tax (IHT) threshold and residency nil-rate band and annual Capital Gains Tax exemption limit will also remain unchanged for four years.

Summary of changes

Overall the Budget announcements do appear quite light in view of the necessary demands on government borrowing. Whilst there were no clear immediate personal tax rises, the freezing of the Lifetime Allowance, Inheritance Tax thresholds and the Capital Gains Tax limits coupled with the freezing of the income tax and National Insurance thresholds from 2023 all give rise to a set of ‘wealth’ tax rises in all but name.

All of these changes and the potential uncertainty they may bring over time only highlight the need for investors to seek out and utilise good financial planning and advice. The Lifetime Allowance will now be £125,000 less than it was projected to be so savers who were close to the limit will need to review decisions taken around ongoing funding and future crystallisation events. From an ISA annual subscription perspective the old adage around ‘use it or lose it’ remains and future planning around Inheritance Tax may need to be revisited.

Important information
The information provided is based on our current understanding of the UK legislation as at 04/03/2021 and may be subject to amendments as a result of changes in legislation. All references to taxation are based on our understanding of current UK taxation law and may be affected by future changes in legislation, the individual circumstances of the investor and pension scheme conditions. The information provided in this article is not intended to offer advice. VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority. This article’s view is based on the law, practices and conditions as at the day of publication. While we have made every effort to ensure they are accurate, we accept no responsibility for our interpretation or any future changes.

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