Budget 2021: Your Guide to the Key Announcements
The Budget was delivered yesterday by Chancellor, Rishi Sunak. With many of the key policy announcements trailed heavily in the press during the previous week, was there much of substance left to deliver? We take a look at the key points from the 2021 Budget and assess how this may impact your finances.
- Economic Growth: The UK economy is set to grow by 6.5% this year, up from the 4% forecast at the March Budget. After this initial rebound, growth is forecast to be much more muted during the following years. Updated forecasts show the loss to national output due to Covid will be 2% in the long-term. The impact from Brexit is expected to be around 4%, double that of the pandemic.
- Inflation: Price rises are likely to average over 4% in 2022 and inflation may peak at over 5%.
- Taxes & Allowances: The tax rises in the Budget added to those announced earlier this year mean the total tax take will reach its highest level since the 1950s, rising from 33.5% of GDP to 36.2% of GDP by 2026/27. This has been driven by Income tax thresholds being frozen along with rises in Corporation Tax and National Insurance.
- Income Tax: Rates and allowances remain unchanged. The tax on dividends will increase by 1.25%. The ‘Personal Allowance’ and all thresholds remain frozen, meaning more people will start to pay Income Tax and more will become higher and additional rate taxpayers.
- National Insurance: 1.25% will be added to the rate of National Insurance from next year for employees, employers and the self-employed to help pay the reforms to social care.
- Capital Gains Tax: Rates and allowances remain unchanged.
- Inheritance Tax: Rates and allowances remain unchanged.
- Corporation Tax: From April 2023, this will increase to 25% on profits over £250,000. Profits under £50,000 will be taxed at 19% with relief for businesses with profits under £250,000 so that they pay less than the main rate of 25%.
- ISAs: No change to the contribution limits of ISAs (£20,000 per year) or Junior ISAs (£9,000 per year).
- Pensions: No change to pensions tax relief. Annual and lifetime allowances remain fixed and will not rise in line with inflation. The State Pension ‘triple lock’ has been replaced by a ‘double lock’ for this year only meaning the State Pension will rise in line with CPI inflation (3.1%) next April.
- Government spending: Total spending is set to increase in real terms by £150bn by 2024 – the largest rise this century.
- Air travel: Domestic UK flights will be subject to a new lower rate of Air Passenger Duty from April 2023 with a higher rate introduced for ‘ultra long haul’ flights of over 5,500 miles.
- Business rates: A new 50% business rates discount will be applied to the retail, hospitality, and leisure sectors over the next 12 months, up to a maximum of £110,000 per firm.
- Alcohol duty: Duty on alcohol is set to be simplified in 2023 with new rates based on alcohol content. A new ‘Draft Relief’ was also introduced to reduce the rate of duty on some draft beers and ciders.
- Universal Credit: The ‘taper rate’ will be cut by 8% from December bringing this down from 63% to 55%. This aims to reduce the disincentive for those on this benefit to take on additional paid employment.
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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