The Budget 2021 was always going to be focused on the pandemic and financial measures associated with it. However, it also started to pave the way for how, as a nation, we will repay the vast sums spent so far.
How your wealth is affected will largely depend on your employment status, whether:
- an employee
- a business owner
- self employed
- approaching retirement
Budget 2021 and employees
For those whose job has been on hold for months, or ‘temporary leave’ as the government calls it, it’s good news. The furlough scheme will be extended and will cover 80% of “hours [you] cannot work”. Unlike the early incarnations of the scheme, you cannot get paid for another job when on furlough. Your employer will pay you your wage, and also pay your National Insurance contributions and pension costs
Your employer can currently claim 80% of an employee’s usual salary, without needing to contribute anything themselves. However, that changes to contributions of
- 10% in July
- 20% in August
This may affect how many staff employers can afford to keep on furlough, so we may see a rise in those being made redundant or offered early retirement.
No change to income tax thresholds
The Chancellor froze the tax thresholds, so that from April this year, you can earn:
- Up to £12,570 a year tax free
- Up to £9,568 before National Insurance is due
- Up to £50,270 before having to pay the higher rates of tax of 40% for employees
This freeze will mean that, moving ahead, your net income will slightly drop. Normally, the tax allowance rises slightly every year. However, when the threshold is frozen and as wages rise, the amount of income people pay tax on increases. The freezing of the upper limit will also mean the number of people moving into the upper income bracket will increase too.
School’s off for summer
Or not, as the Chancellor has introduced funding for summer schooling so that children can catch up with their studies. Many parents who have struggled with home schooling and working may welcome another two weeks’ of home working in peace and quiet!
Budget 2021 and corporation tax
For company owners, part of your future planning as you near retirement will need to factor in a major increase in corporation tax that your business will need to pay. The Chancellor announced that corporation tax will rise from 19% to 25% from April 2023, with three main conditions:
- Profits under £50,000 remain at 19% tax
- Profits between £50,001- £250,000 will be taxed on a tapered rate
- Profits over £250k will be taxed at the new rate of 25%
More help for businesses
The Chancellor announced a new Super Deductions scheme, where companies offset capital expenditure to 130% of the original cost. While full details are yet to be announced, this basically means your business can ‘deduct’ investment costs from their tax bill and reduce taxable profits by a generous 130%. Other help includes:
- The Recovery Loan Scheme for businesses that would have been viable if COVID hadn’t happened. Businesses can apply for up to £250,000, and no personal guarantee is required.
- The Restart Grant, which will probably be up to £6000 for non-essential retail and up to £18,000 for businesses that are to re-open later in the year.
These schemes could allow business owners to fund changes and remain viable without owners having to dip into personal reserves to fund them.
Time to sell up?
House sales are booming, so this could be a very good time to move to that bigger home, downsize, or splash the cash on your dream mansion for retirement. The Chancellor has extended the Stamp Duty holiday until 30 June 2021, with no stamp duty due on house sales under £500,000. From 1 July - 30 Sept stamp duty starts at sales of £250,000, and from 30 Sept onwards stamp duty reverts to its original starting point of sales of £125,000.
Help for first-time buyers and movers
A mortgage guarantee scheme will be introduced from April 2021. All buyers will have the opportunity to fix their initial mortgage rate for at least five years if they wish. The scheme is available for new mortgages up to 31 December 2022. It provides a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000.
Capital gains tax
If you want to sell other assets, including second homes, there is no change in the level of capital gains tax. As the Budget document states,
“Inheritance tax thresholds, pensions life time allowances and annual capital gains tax exemptions to be frozen at 2020-2021 levels until 2025-26.”
However, once again this means that as the value of assets rise, you will ultimately pay more tax as the threshold doesn’t rise in line with prices.
SEISS grants for the self-employed
For those who plough their own furrow in business, there are two further SEISS grants on offer, but they have more conditions attached than before.
The fourth SEISS grant is for 80% of 3 months’ average trading profits, and is capped at £7,500 total. It’s welcome news for the newly self-employed too, as:
“The fourth grant will take into account 2019 to 2020 tax returns and will be open to those who became self-employed in tax year 2019 to 2020.”
The fifth SEISS grant will cover EITHER 80% of your average monthly trading profits for 3 months OR 30% of your average monthly trading profits over three months.
For more info, go to the government's grant scheme page.
Fuel, beer and tobacco
The traditional rises in any normal Budget would be on the big three “unhealthy necessities” namely fuel, alcohol and tobacco. However, this was not a normal Budget!
- All alcohol duties were frozen for the second year running
- No extra tax on spirits, wine, cider or beer
- Fuel duty was frozen for a record eleventh consecutive year
Tobacco duties had already risen in November 2020, so no further rises were announced in this Budget
New investment opportunity?
The Government announced that they would issue £15bn in green bonds, available for retail investors, to help finance the UK’s transition to net zero by 2050.
What does the Budget mean for my retirement planning?
For now, not much is changing. The freezing of all allowances including pension limits may gradually impact some retirement plans. Also, as indexed pension income such as the state pension and final salary schemes increase, your net income will effectively reduce. You may not really notice this to start with, but it is certainly something to consider going forward.
The Treasury previously announced that any new tax consultations will be issued on the 23rd March 2021. So watch this space.
Managing your financial goals
Need to review your financial goals or roadmap to retirement? Contact us for expert advice and pragmatic guidance, whatever your financial position.