This year’s Budget marked a crucial moment for the chancellor Rishi Sunak and the government, where they announced new measures to help the country recover from the Covid 19 pandemic.
While there were many more policies announced that will boost the economy, the Chancellor also announced some tax increases in order to try and balance the books in the longer term.
The lead up to Wednesday’s announcement created a lot of media speculation around an attack on CGT, IHT & Pensions to name but a few. It was a pleasant surprise to see that none of the tax wrappers were attacked. Sunak has also decided to freeze some tax rates, which can be seen as a positive considering the current climate. Here are some of the key points we have taken away from the Spring Budget that we feel are relevant for Imperial Chartered clients:
LTA, CGT and IHT frozen
The pensions lifetime allowance (LTA) will be frozen at £1,073,100, raising the Treasury £990m by 2025/6.
In addition, the Treasury also announced in the Budget it would be maintaining the current inheritance tax (IHT) thresholds.
The nil-rate band will be kept at £325,000 and the resident nil-rate band at £175,000 until 2025/26. The nil-rate taper will also remain at £2m. Over the next five years to 2025/26, the move could add £985m to Treasury coffers.
The annual exempt threshold of £12,300 before capital gains tax is liable is also being frozen.
Considering the rumors of ‘tax raids’ in these areas, the announcements were certainly well received at Imperial Chartered and deemed as a positive from a financial planning perspective.
When it comes to pensions, the only real change (apart from the LTA freeze) was the announcement of possible new rules to encourage workplace schemes to invest in illiquid assets. To do this, the government is going to carry out a review into the charge cap. The Government plan to consult within the next month on whether certain costs within the charge cap affect pension schemes’ ability to invest in a broader range of assets.
One of the biggest factors that was discussed in the budget was Income Tax, where Sunak announced he would be freezing each of the income tax thresholds:
- the personal allowance will be frozen at £12,570 from April until 2025/26;
- the higher threshold rate will be kept at £50,270 until 2026.
This policy will bring millions more into higher tax brackets as inflation and wages rise. The Treasury has also estimated that it will raise £19.3bn from this over the next five years.
Tax hike for firms
Businesses with profits over £250,000 will see their tax rate rise to 25% by 2023, and firms making less will see their rate reduced by marginal relief.
Firms making less than £50,000 will see their current level of corporation tax maintained at 19%. According to the Treasury’s documents, the new rates will bring in £11.9bn from 2023-24, the first financial year they are in place. This will rise to £16.3bn in 2024-25 and £17.2bn the following year.
Last year, it was revealed that large numbers of women were being underpaid.
Therefore, the budget stated that The Department for Work and Pensions (DWP) disclosed its bill for underpaid state pensions for certain married women, widows and people aged over 80 will be £3bn.
In the summer, a new sovereign green bond framework will be released. As part of this new scheme, Sunak has introduced a new ‘green bond’ issued by National Savings and Investments.
This new bond will allow savers to invest in green projects whilst earning interest on their savings.