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How can Financial Planning help after the Budget announcement?

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The Budget was actually Rishi Sunak’s 15th major announcement since his first Budget, just under a year ago now. During this period, the pandemic has clearly dominated the Chancellor’s plans and of course this was true of his latest Budget. To no small degree the framework for Mr Sunak’s latest appearance at the despatch box had been set by the data-dependent (but date-filled) road map outlined by the Prime Minister nine days before the Budget.

Mr Sunak extended the main employment support schemes, the coronavirus job retention scheme (CJRS – furlough scheme), with a cumulative cost of nearly £54 billion to the end of September. According to the Chancellor, the government’s total pandemic-related spending during 2020/21 and 2021/22 will amount to £407 billion. To put that figure into context, it is £14 billion more than the total amount that income tax will produce over the same two years, according to the Office for Budget Responsibility (OBR).

Such spending has left such a hole in the UK’s public finances that the Chancellor has regularly said must be addressed. However, many outside bodies, from the International Monetary Fund to the Institute for Fiscal Studies, have counselled that now is not the time to raise taxes. Their argument is that he should only address the deficit (£355 billion in 2020/21) once the economic recovery is firmly entrenched. Therefore in this Budget, Mr Sunak has largely followed that cautious advice, initially limiting his tax rises to the old stealth option of freezing most personal tax allowances and bands until 2026. However, from 2023 he has been a little bolder, with no less than a 6% increase in the rate of corporation tax. The Government are also due to publish a range of tax related consultations on 23 March 2021, so-called ‘Tax Day’, in order, according to the Gov.uk website, “to give a range of important but less high profile measures greater visibility”.

Key Personal Tax Changes

So what were the key personal tax changes announced & can anything be considered to help mitigate these changes from a financial planning perspective?

Income tax

The personal allowance will rise to £12,570 and the higher rate threshold for 2021/22 will increase to £50,270, as previously announced. However, from 2022/23 to 2025/26, both the personal allowance and higher rate threshold will be frozen. In Scotland, the higher rate threshold for non-savings, non-dividend income will rise to £43,662 in 2021/22 as announced in the Scottish Budget.

There are ways to avoid losing some or all of your personal allowance.  The personal allowance of £12,570 for 2021/22 is reduced by £1 for every £2  by which income exceeds £100,000. One consideration is to consider making a pension contribution or a charitable gift to bring your income back below £100,000, or back below the other key thresholds such as the higher rate tax threshold of £50,270 (or £43,662 in Scotland), and the unchanged individual income threshold where Child Benefit entitlement is reduced. 

National insurance contributions (NICs)

The NIC upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for 2021/22 and through to 2025/26

Individual savings account (ISA) subscription limits

The ISA annual subscription limit for 2021/22 will remain at £20,000 and the corresponding limit for Junior ISAs (JISAs) and child trust funds (CTFs) will stay at £9,000.

As the dividend allowance and personal savings allowance has been frozen since 2018/19, one consideration is to use your ISA allowances to best effect. Only a current tax years ISA allowance is available to be used, as once the tax year finishes the allowance is lost. There are a number of different ways, for example, either by using a Cash ISA or a Stocks & Shares ISA, depending on a individuals objectives and risk appetite and outlook, that an ISA allowance can be used.

Green National Savings & Investments (NS&I) product

NS&I will offer a green retail savings product in Summer 2021. It will be closely linked to the UK’s sovereign green bond framework, details of which are to be published in June 2021. The first green gilt will also be issued this summer.

Lifetime allowance

The lifetime allowance for pension savings will be frozen at £1,073,100 until April 2026. More committed and consistent pension savers risk running into the Lifetime Allowance limit.

Regularly review the value of your pension benefits and any ongoing contributions to understand your options. There are also various forms of Protection that may be available to you around the lifetime allowance.

Capital gains tax (CGT) annual exempt amount

The annual exempt amount for individuals and personal representatives will remain at £12,300 until 5 April 2026, and the amount for most trustees will likewise remain at £6,150 (minimum £1,230). CGT reform remains on the agenda.

Now is may be a good time to review whether to realise any gains before any future changes.

Inheritance tax (IHT)

The IHT nil rate band will remain at £325,000 until 5 April 2026. The residence nil rate band (RNRB) will likewise stay at £175,000 and the RNRB taper will continue to apply where the value of the deceased’s estate is greater than £2 million.

Whilst IHT reform has been on the radar it is remaining untouched for now. However, now may also be a good time to review your plans before any changes potentially take place.

At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We work with our clients to build robust financial plans. By regularly reviewing these plans they can be adapted when your circumstances change or new legislation, such as a budget, happens.


If you need to review your plans please contact us on 0808 144 5575 or email help@armstrongwatson.co.uk

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