Well, it came and went as we knew it would, but the surprising thing is there were definitely no dramatic tax rises (other than corporation tax rises for companies making over £50,000 per year). The vast majority of us could be forgiven for thinking not a lot will change, however – as always the devil is in the detail!
So, what is the background? We now have the highest level of public borrowings since World War 2. The latest estimate is that debt will peak at around 97.1% of GDP (Gross Domestic Product or equal to the entire countries economic output) in 2023/24. Ignoring this eye-watering figure would plunge our “children’s children” into debt so many commentators are surprised and may even accuse the Chancellor of not going far enough. However, balance this with the fact we still have huge parts of the economy in lockdown and entire industries still reliant on the furlough scheme for example, “wading in with both feet” was always going to come with risks!
So, what has changed and how will this affect people, here is our budget summary:
- Personal tax allowances frozen at £12,570 until at least 2026. Affecting approximately 1.3million people!
Explanation: Most people tend to get a pay rise every year to ensure “your pay” continues to maintain its spending power. Also, minimum wage is also linked to inflation. If your basic pay rises but the starting point to pay tax doesn’t, more people will become tax-payers. Also, more people who pay basic-rate tax today will be pushed into the 40% tax bracket!
- Pension Lifetime Allowance frozen at £1,073,100.
Explanation: Usually linked to Cpi inflation, this limit has been frozen until at least April 2026. “This will not affect me” I hear you say, however there are many people in public service who have final salary pensions (especially the NHS) who will be negatively affected. Expect this to feature more in the NHS pay discussions very soon when those affected realise!
- Corporation tax to rise to 25%.
Explanation: In 2023, the rate “successful” companies pay will rise from 19% to 25%. A rise of over 31%! A “successful company” being one that earns more than £50,000 in profit. Many small family companies and even sole Director service companies will be dragged into the higher rates.
- Inheritance tax nil-rate band frozen at £325,000.
Explanation: With house prices continuing to rise quickly, the majority of estates could become worth more than £325,000 and therefore becoming eligible to pay this very unpopular tax!
- Stamp duty holiday extended. Affecting approximately 300,000 transactions!
Explanation: Extended to the end of June 2021 so no stamp duty is payable on purchase of a main residence up to £500,000. A reduced £250,000 limit will replace this until end of September 2021 before reverting back to normal.
Basically, what the Chancellor has done is make it feel that nobody has lost out but, rest assured the overall tax take is set to rise dramatically. In the next 12 months expect some turbulence and arguments to kick off, especially from either lower-paid employees, small business owners and public servants (especially the NHS).
Still not sure what all this means? Get in touch with your local experts and build your very own Financial Fortress!