“Whatever it takes”
Daffodils are in bloom, spring is in the air and the debate over whether or not Easter eggs are an essential retail item has now reached its conclusion. Welcome to April’s edition of the Wealth Management Update.
In March’s Update we were eagerly awaiting Chancellor Rishi Sunak’s spring budget and looking beyond to the so-called “Tax Day” on 23rd March. The 23rd also marked the anniversary of the first UK lockdown – the beginning of “the new normal”. For 2021, the spring budget came with a promise that the government will do “whatever it takes” to shore up the UK economy, with commitments totalling £65 billion in fiscal support. But at what expense to the taxpayer?
The latest Household Finance Review published by UK Finance revealed a growth in total personal savings deposits of 3.8% by the final quarter of 2020 and an increase in funds held in immediate-access accounts, perhaps indicative of households gearing up for a spending frenzy once restrictions ease. That said, optimism around a 2021 post-lockdown economic bounce-back were slightly tempered from the Office for National Statistics’ forecasts in November of 5.5% growth to a revised expectation of 4%, so perhaps less of a frenzy and more of a phased return to “normal”.
First came the budget…
It was widely expected that the first post-pandemic budget since 1918, the first also in a post-Brexit UK, would not be “business-as-usual”. Over the last 12 months we have witnessed the UK economy’s worst performance for over 300 years and a fall in GDP of 9.9% in just one year. It was hardly surprising that several commentators were expecting sweeping changes.
However, rather than tearing up regulations and taking an axe to business taxes in the name of unleashing growth, the budget sought to prop up the economy for now until a recovery can take hold and strategies to pay back huge government spending can begin to be implemented.
As a share of GDP, tax is set to rise to its highest level since the 1960s, an increase well above the lows of the late 1980s. This budget was not designed to cut taxes in a dash for growth in productivity but to balance tax increases and spending cuts.
Tax increases on individuals will largely take the form of the freezing of tax allowances. For businesses the increase will be felt in 2023 with a rise in Corporation Tax from 19% to 25%. Government departmental spending will also be frozen, which effectively means cuts in spending on non-ring-fenced services of around 15%.
The stamp duty holiday was extended until 30th June, after which the Nil Rate Band will be doubled to £250,000 until the end of September before dropping back to its previous level of £125,000 in October.
The Personal Allowance, the amount you can earn before paying any Income Tax, will increase to £12,570 for the 2021/22 tax year (up from £12,500 in 2020/21). The threshold for the Higher Rate of Income Tax (which is 40%) will also increase, to £50,270 (from £50,000 in 2020/21). Both thresholds will then be frozen until 2026.
To allow you to take advantage of your annual allowances before they reset for another tax year, the Chancellor announced that the lifetime allowance for pensions, the Inheritance Tax nil band and the Capital Gains tax exemption level will be frozen until 2026.
The Covid-19 job-retention scheme was also extended and will run until at least the end of September. Furloughed employees will receive 80% of their salaries, with first 10% and later 20% being contributed by their employer from July and August, respectively. There will be a fourth issue of the self-employment grant (the SEISS) at 80% of average trading profits, and a fifth grant will be issued at 80% of average trading profits where turnover has fallen by 30% or more, or at 30% of average trading profits where turnover has fallen by less than 30%.
…and then came ‘Tax day’
The so-called “Tax Day” followed the budget, featuring more than 30 tax updates, numerous consultations and publications. According to Jesse Norman, the Financial Secretary to the Treasury, the 10-year tax plan laid out is designed to increase the “transparency, discipline and accessibility of tax policymaking”. The points that stand out for us are plans to tighten the tax rules on second properties and changes to the bureaucracy surrounding Inheritance Tax.
Plans announced include a reduction in the amount of paperwork required for 90% of non-taxpaying estates for which, under new proposals set to go live in 2021, Inheritance Tax forms will no longer need to be completed when probate or confirmation is required. Mr Norman commented that it would “cut IHT red tape for more than 200,000 estates every year, dramatically reducing the amount of paperwork many families fill out”. Reporting regulations will also be updated for those estates where the deceased was never domiciled in the UK but owned indirect interests in UK residential property.
Whilst major changes to pensions and Capital Gains Tax were notable exclusions for the day, second-homeowners were targeted. Under the rules announced although not yet implemented, second-homeowners will only be able to register for business rates instead of higher rate council tax if their property is a genuine holiday let, a change which for some could eliminate access to the current business relief rates of up to 100%.
As Chartered Financial Planners, we were interested to see that the government is now beginning to focus its attention on unregulated tax advisers, considering implementing a requirement for all to hold professional qualifications. Although many tax advisers do hold professional qualifications, it is not yet compulsory for them to do so.
Best Savings Selection
Top 3 Cash ISAs
Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneysavingexpert.com 06.04.2021.