Chancellor of the Exchequer, Rishi Sunak, delivered his third Budget and the results of his Spending Review on 27 October, declaring that it begins “the work of preparing for a new economy post-COVID.”

Reducing taxes – but not yet

The Chancellor took the opportunity to announce in his speech that reducing taxes will be his “mission over the remainder of this parliament”. However, on Budget Day itself, no major tax changes were announced and instead, the focus was on spending.

Pre-announced changes

The key tax change, the new Health and Social Care Levy, had already been announced in September, and was barely mentioned in Mr Sunak’s speech. The tax will be introduced in April 2022, initially as a 1.25 percentage point increase in National Insurance contributions, paid by both workers and employers. From April 2023, it will become a separate tax on earned income, calculated in the same way as National Insurance and ring-fenced as a Health and Social Care Levy. Tax on share dividends that are outside tax-free allowances is also scheduled to increase by 1.25 percentage points from April 2022.

No change

The feared shake-ups to Capital Gains Tax and Inheritance Tax failed to materialise. There were also no major tax changes affecting the self-employed.

The 2022/23 tax year ISA (Individual Savings Account) allowance will remain at £20,000. The JISA (Junior Individual Savings Account) allowance and Child Trust Fund annual subscription limit will stay at £9,000.

The following allowances and thresholds remain as previously announced in the March Budget:

• The Income Tax Personal Allowance and higher rate threshold are to remain at current levels – £12,570 and £50,270 respectively – until April 2026 (rates and thresholds may differ for taxpayers in parts of the UK where Income Tax is devolved)
• Inheritance Tax nil-rate bands continue to remain at existing levels until April 2026 – £325,000 nil-rate band, £175,000 residence nil-rate band with taper starting at £2m
• The Capital Gains Tax annual exemption remains at £12,300 for individuals, personal representatives and some types of trusts, and £6,150 for most trusts
• The Dividend Allowance remains at £2,000
• The Lifetime Allowance for pensions will remain at its current level of £1,073,100 until April 2026
• The Annual Allowance for pensions remains at £40,000 until April 2026.

Take sensible steps

Sensible tax planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.

Sources

https://www.gov.uk/government/speeches/autumn-budget-and-spending-review-2021-speech

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028813/Budget_AB2021_Print.pdf

https://www.ft.com/content/af5cfe1f-e32d-4009-bfa8-b9344d600dc4