Given the size of government borrowing and the chancellor’s strong indication that “repairing public finances” and returning to “fiscal conservatism” would be necessary at some time, this Budget certainly came with ‘great expectations’.
Despite these warnings, though, there was strong official commitment to prioritise restoring the economy; and to support jobs, individuals and businesses. We were also told that only changes that would be incorporated into the next Finance Bill would be announced at the Budget, with any consultations on future tax change not being published until 23 March.
So what changes were announced in the Budget and what could they mean for your financial plans?
The chancellor announced a “three-part plan” incorporating:
- A commitment to continue to do “whatever it takes” to support the economy, jobs, people and businesses
- Fixing public finances in an honest and open way
- Beginning the building of our future, post-pandemic, economy
So, what changes will be of most interest to investors, employees, business owners, the self-employed, homeowners or buyers, retirees and those saving for retirement? Of interest to all individuals is the expected freezing until April 2026 of the main allowances, thresholds and exemptions for Income Tax, Capital Gains Tax and Inheritance Tax.
Many employed and self-employed individuals will be relieved that the furlough and self-employment income support schemes are being extended through until the end of September, with the latter being expanded to allow more people to claim.
Investors and those saving for retirement will be relieved that the limits on how much you can invest in tax-efficient pensions and ISAs remain unaffected, as does the taxation of income and gains from investment.
The extension of the Stamp Duty Land Tax cut until the end of June, and the new mortgage guarantee scheme delivering mortgages with the need for only 5% deposits, will both be of interest to those looking to move or buy their first home.
For those saving for retirement or about to start drawing down on their retirement funds, we have seen a freeze in the lifetime allowance of £1,073,100 until April 2026. This year’s inflation-linked increase was going to be less than £6,000, so that isn’t really too much of a worry. However, over the next five years we would have hoped to see an increase up to around £1,200,000, which is significant.
For those who are not at the lifetime allowance, there is no impact; but for those with pension savings at or over this value, careful planning will be needed to minimise any impact, at least in the short term. We do hope that after five years, we will see further increases in line with inflation.
For company owners, the proposed increase in the Corporation Tax rate to 25% from 1 April 2023 may be of concern. However, this rate will only apply once profits hit £250,000; and if profits are below £50,000, the current 19% rate will continue to apply. There will be a sliding scale for profits in-between.
There are, however, some new provisions for all businesses to allow losses to be carried back for three years and a new “super deduction” capital allowance of 130% for companies on qualifying capital expenditure. This super deduction will, in effect, allow companies to cut their tax bill by up to 25p for every qualifying £1 they spend.
Even these relatively light changes to the tax landscape remind us of the importance of factoring tax into our financial plans and the importance of informed advice in making smart choices to achieve optimum outcomes.
This may be only the start of the journey towards a changed tax landscape, although we may get a better idea of what that landscape might look like with the promised consultations on 23 March.
In the meantime, don’t forget that we are not far away from the end of the tax year, so do feel free to discuss with us how to achieve a tax-efficient end to this year and a great start to the next one.
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