Given the economic backdrop, anything that raises tax income is understandable. However, it’s becoming painfully difficult for people approaching retirement to plan with any certainty when the rules are constantly changing around how much they can save during their lifetime. Building a pension pot for retirement is a long term objective and needs some stability in the tax rules to allow people to plan effectively.
The lifetime allowance usually rises in line with CPI every year and a five year freeze means the lifetime allowance will be substantially lower by 2025/26 than it otherwise might have been. We will see more people potentially falling foul of a tax charge.
Here’s our summary of the proposed changes with links to the Budget documents if you would like more detail.
The furlough scheme and self-employed grants have been extended until the end of September. The furlough scheme currently pays 80% of employees wage for the hours they cannot work in the pandemic. Employers will be expected to pay 10% towards the hours their staff do not work in July, rising to 20% in August and September. Newly self-employed who had filed a tax return by midnight on 2 March will qualify for the self-employed grant.
The personal allowance (the amount you earn before you start paying income tax) will rise to £12,570 from April 2021 and will remain at this level until April 2026.
For non-Scottish tax-payers, the amount people will have to earn before they pay tax at 40% will rise to £50,270 from April 2021 and will remain at this level until April 2026.
The government will consult on whether certain costs within the charge cap affect pension schemes’ ability to invest in some assets. The aim is to ensure pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers. Draft regulations will be laid to make it easier for schemes to take up such opportunities within the charge cap by smoothing certain performance fees over several years.
To encourage UK pension funds to direct more of their capital towards the UK’s economic recovery, the Chancellor has written to the Governor of the Bank of England setting out his ambition to see the establishment of the UK’s first long-term asset fund in 2021.
The lifetime allowance will be maintained at the current level of £1,073,100 until April 2026.
The annual allowance remains at £40,000 for 2021/22.
The money purchase annual allowance remains at £4,000 for 2021/22.
Threshold income remains at £200,000 and adjusted income at £240,000 for 2021/22.
The inheritance tax threshold will be maintained at the existing level of £325,000 until April 2026.
The adult ISA annual subscription limit for 2021/22 will remain unchanged at £20,000.
The junior ISA annual subscription limit for 2021/22 will remain unchanged at £9,000.
Listen to Clare Moffat and Fiona Hanrahan from our Intermediary Development and Technical team as they investigate some of the main headlines in the 2021 Spring Budget and consider the impact this could have on financial advisers and their clients.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.