2021 SPRING BUDGET SUMMARY
On 3rd March 2021, Chancellor Rishi Sunak delivered the Spring Budget. In this budget he announced the platform to discuss the ways in which the government had been supporting individuals and businesses throughout the Coronavirus pandemic so far, and to outline the ongoing challenges of securing both economic growth and eventually repaying the tax bill, in order to help stabilise the country.
The Chancellor recognises that that job losses and borrowing on this scale are only comparable with wartime rates and are not sustainable indefinitely.
Some changes that were rumoured to be announced, were not, particularly with regard to a change to the capital gains tax system, beyond the freezing of the annual exempt amount for several years, which is reflected across all tax bands.
COVID-19 SUPPORT SCHEMES
The Coronavirus Job Support Scheme will be extended to September 2021 across the UK. Employee contributions will increase to 10% from July and 20% in August and September.
SELF-EMPLOYMENT INCOME SUPPORT SCHEME (SEISS)
The Self-Employment Income Support Scheme (SEISS) has been extended to September 2021 across the UK. Those who filed a tax return in 2019/20 (up until midnight on 2nd March 2021) are now able to claim for the first time.
Grants from the Self-Employment Income Support Scheme (SEISS) made on or after 6th April 2021 are to be taxed in the year of receipt. This measure will have effect for the tax year 2020 to 2021 and subsequent tax years.
A new charge will be enforced if a person is not entitled to a Self-Employment Income Support Scheme (SEISS) payment. This measure will allow HMRC to recover payments where an individual subsequently ceases to be entitled to all or part of the grant. The individual is subject to a 100% tax charge if they receive a payment but are not entitled to it.
An exemption from income tax for the Covid-19 support scheme will be introduced for working households receiving tax credits payments.
CAPITAL GAINS TAX
The annual exempt amount will remain fixed at £12,300 until April 2026. There are no changes made to the CGT rates.
The nil rate band will remain at £325,000 and the residence nil rate band will remain at £175,000 until April 2026. The residence nil rate band taper threshold is also frozen at £2 million until April 2026.
Personal Allowance is increasing to £12,570 for 2021/22 and the basic rate band is increasing to £37,700. This means a higher rate threshold of £50,270 – with the caveat that these figures will remain frozen until April 2026.
There are no changes to dividend allowance, personal savings allowance or starting rate band for savings.
Note: Changes to Personal Allowance will apply to the whole of the UK. Changes to the basic rate limit, and higher rate threshold, will only apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividend income in the whole of the UK. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament.
The National Insurance Contribution Upper Earnings Limit and Upper Profits Limit will parallel the higher rate threshold of £50,270 for the UK from 2021/22 through to 2025/26.
The Lifetime allowance for pensions remains at £1,073,100 until April 2026. With no changes announced to annual allowance, money purchase annual allowance or tapered annual allowance.
The government will ensure that collective money purchase pension schemes (or collective defined contribution schemes), to be introduced by the Pension Schemes Act 2021, can be used as registered pension schemes for tax purposes.
The government are to remove preventative barriers in pension regulation that may be discouraging Defined Contribution pension schemes from investing in high-growth companies.
The government will look to tap into the pool of capital available from institutional investors, particularly DC pension schemes, to assist in the redevelopment of the country’s infrastructure and economic initiatives and will seek consultation on whether certain costs within the charge cap affect the ability of pension schemes to invest in a wider range of assets.
Investing funds held within UK pensions could provide a massive boost to the government’s economic redevelopment plans, as well and could enable savers to benefit from the long term returns on these investments. The FCA is to publish a consultation.
The ISA subscription limit remains at £20,000 in 2021/22. The Junior ISA and Child Trust Fund subscription limits will remain at £9,000.
SOCIAL INVESTMENT TAX RELIEF (SITR)
The government is extending the operation of Social Investment Tax Relief (SITR) to April 2023. This will continue availability of Income tax relief and Capital Gains Tax hold-over relief for investors in qualifying enterprises.
Corporation tax rates will be frozen at 19% for the tax years 2021/22 and 2022/23. It will increase to 25% in 2023/24. However, for companies with profits of up to £50,000, the rate will remain at 19%.
Tapering for companies will begin with profits over £50,000 but less than £250,000. This means only companies with profits above £250,000 incur the full 25% rate.
Companies with profits between £50,000 and £250,000 will be taxed at the main rate of 25% and will be eligible to claim marginal relief.
The government will temporarily extend the period in which businesses may carry-back trading losses from the initial one year to three years. The extension will apply to a maximum £2,000,000 of unused trading losses made in each of the tax years 2020/21 and 2021/22 by unincorporated businesses.
To prevent abuse, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability.
For accounting periods beginning on or after 1st April 2021. Between 1st April 2021 and 31st March 2023, companies investing in qualifying new plant and machinery will benefit from new first-year capital allowances. This means investments in main-rate assets will see relief at 130% super-deduction, whilst investments in assets qualifying for special rate relief will benefit from a 50% first-year allowance.
The temporary £1,000,000 limit for the Annual Investment Allowance will be extended by one year. This change will have effect from 1st January 2021 to 31st December 2021.
STAMP DUTY LAND TAX (SDLT)
The SDLT temporary cut in England and Northern Ireland is extended until September. The £500,000 nil rate band will be extended until 30th June 2021 then it will be set at £250,000 until 30th September 2021. On 1st October 2021, this will return to its standard level of £125,000.