Budget 2021 Special: 12 Key Takeaways
Rishi Sunak delivered his second Budget yesterday. Set against a backdrop of the COVID-19 pandemic and Brexit, the Chancellor set out a ‘spend now, tax later’ set of proposals. With the economy suffering one of the biggest shocks in a century and still very fragile, there was continued support for individuals and business but also acknowledgement that ballooning government debt must start to be repaid in the near future. With this in mind, he set out a number of tax rises and allowance freezes that are set to come into force over the next few years which will see many more people paying more tax. It was difficult for the Chancellor who was attempting to support the economy, balance the books and promote ‘Global Britain’ as a place to invest and do business.
Here are the 12 key takeaways from the Budget and how they could impact you and your finances:
1. Furlough extended. The furlough scheme will now end in September this year with the pandemic continuing to disrupt the economy. This extension to the scheme will cover 80% of wages for those not working due to the pandemic. Employers will be required to contribute 10% of salary from July and 20% from August. This ‘taper’ is designed to avoid a cliff-edge ending to the scheme.
2. More support for the self-employed. From April, those who are self-employed can access a fourth grant worth 80% of three months’ average trading profits, up to £7,500 in total. A further grant later in the year, covering May to September was also announced with the amount paid dependant on turnover lost.
3. COVID spending. Total spending on the pandemic is expected to hit £352bn over two years – or £407bn once other fiscal support is included. £1.6bn was pledged for the vaccination programme and £100m will be spent on a new ‘Taxpayer Protection Taskforce’ staffed by 1,250 people to hunt COVID fraudsters, including furlough fraud.
4. Income Tax thresholds frozen. In England, there will be no changes to Income Tax thresholds or the tax-free Personal Allowance with these frozen until 2026. This will push millions more low-earners into paying Income Tax and significant numbers into higher tax brackets should wages rise in the coming years.
5. Pension Lifetime Allowance frozen & tax-relief unchanged. The ‘Lifetime Allowance’ was frozen rather than the typical rise in line with inflation. This is the total lifetime pension value limit, above which tax is payable. This could see many more high-earners and those in generous pubic sector pension schemes pay tax unless they take mitigating action. There were no changes to pension tax-relief announced.
6. Other taxes frozen. There was some speculation that there would be changes to Capital Gains Tax announced but these proved to be unfounded. Other taxes such as Inheritance Tax will also remain unchanged until 2026.
7. Corporation Tax to rise. Corporation tax for larger companies will go up to 25% from 2023. Small firms will not see rises and a new graduated system will be introduced to ‘taper’ the rate of Corporation Tax for firms making profits of between £50,000 and £250,000.
8. Duties unchanged. The duty on alcohol, tobacco and petrol all remain unchanged.
9. Infrastructure & environmental projects get funding. It was announced that a new UK ‘Infrastructure Bank’ is to be set up. It will receive £12bn in capital, with aim of funding £40bn worth of public and private projects. A new ‘green bond’ was announced to be distributed by National Savings & Investments. These are likely to pay low levels of interest for those looking to help fund environmental projects, helping support the push to reach net zero carbon by 2050.
10. State Pension underpayments to women addressed. £2.7bn was pledged over the next six years to address underpayments of the State Pension to women dating back two decades. This will help around 200,000 women aged over 80 with an expected average payout of £13,500 following the identification of errors affected women, dating back to 1992.
11. Support for business. A range of measures were announced to support businesses through the pandemic and boost the economic recovery. There was an uplift in apprenticeship grants, an extension to the VAT cut for the hospitality industry, a business rate holiday extension and re-opening grants for non-essential businesses.
12. Boosts for the housing market. The Chancellor confirmed that a government-backed mortgage guarantee will mean first-time buyers will require a deposit of just 5% when purchasing properties worth up to £600,000. The Stamp Duty holiday was extended to the end of June. Both of these measures are likely to mean property prices continue to rise in the short-term and the housing market remains buoyant.
If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.
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