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Spring Budget 2021 - Financial Planning Considerations and Opportunities

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In a surprisingly upbeat delivery of this year’s Budget Statement, the Chancellor covered the main, most anticipated financial planning related topics in just a few brief seconds. Whilst it was widely anticipated that this would not be a budget for sweeping changes to personal thresholds, allowances and rates of tax, as the Chancellor looks to encourage the strongest possible economic “rebound” as UK restriction begin to be lifted from the end of this month, it was still a surprise to see no real changes at all.

The Lifetime allowance for pensions is to be frozen until April 2026, there are no changes to the annual allowance, money purchase annual allowance or tapered annual allowance thresholds, ISA limits are to remain at £20,000 in 2021/22, the IHT threshold is to remain unchanged until 2026 and there are no changes to pension tax relief. The fact that the ability to obtain higher rate tax relief on pension contributions and carry forward this relief over 3 previous tax years was not affected in any way was probably the biggest surprise of all. From a planning perspective the ability to fund pensions and ISAs in the year ahead (21/22) unaffected by any changes, is a real positive, though it feels likely that this may be a very limited opportunity, given the size of national debt and the need to begin to reduce it.

Having commented that there has been no real change to most allowances and thresholds, it should be noted that freezing them does have the effect of dragging more people in to being affected. Freezing the Lifetime Allowance instead of allowing it to continue to rise with the Consumer Price Index, will mean more pension savers breach the limit and more revenue is realised, the same is true of the freezing of personal tax allowances and the Higher Rate limit. It will create more tax payers and more higher rate tax payers. Though there is the option for individuals affected to make additional pension contributions to offset any additional tax, these “freezing” measures are not quite as generous as they may initially appear.

The new Government scheme, to back major banks offering 95% mortgages to prospective buyers with small deposits, on purchases up to a value of £600,000, will be widely welcomed, alongside the extension of the stamp duty holiday to the end of June, on purchase prices of up to £500,000 and to the end of September on purchase prices of up to £250,000. The combination of the 2 measures is likely to further fuel the housing market.

Beleaguered savers will welcome the launch of the Government’s “green savings bonds” which will offer retail investors the chance to buy into “green” projects dedicated to boosting the economy, such as renewable energy schemes. Details of rates and terms are yet to be released but the bonds will be offered through National Savings and investments. 

In summary then, from a personal financial planning perspective we still have all of the existing infrastructure available in respect of pensions, savings and Inheritance tax, the question is, how long will this remain the case?


For further information or financial planning advice, contact one of our team on 0808 144 5575 or email help@armstrongwatson.co.uk

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