2021 Autumn Budget Update
Yesterday, Chancellor Rishi Sunak, delivered his 2021 Autumn Budget and Spending Review with a focus on ‘levelling up’ Britain and investing to make the country a ‘more innovative and high skilled economy’. With the economic recovery underway this Budget outlined the government plans to ‘build back better’ over the coming years. Within this article, Andrea Solana, Partner and Head of Advanced Planning, summarises the information we believe to be most relevant.
Yesterday, Chancellor Rishi Sunak, delivered his 2021 Autumn Budget and Spending Review with a focus on ‘levelling up’ Britain and investing to make the country a ‘more innovative and high skilled economy’. With the economic recovery underway this Budget outlined the government plans to ‘build back better’ over the coming years.
Alongside the tax change announcements made earlier this year with respect to corporate tax and the surcharge on national insurance and dividend tax rates, the Chancellor continues to be determined to rely largely on fiscal drag over the next few years to begin to pay for the increases in debt the Government has taken on over the last 18 months.
We have summarised the information we believe to be most relevant below:
Growth & Employment
- The Office for Budget Responsibility (OBR) expects the UK economy to recover faster than previously forecast. Growth for 2021 has been revised up from 4% to 6.5%. Its economic growth forecasts for the UK economy after this year are expected to be the following:
o 2022 – 6.0%
o 2023 – 2.1%
o 2024 – 1.3%
o 2025 – 1.6%
- Unemployment is expected to be 5.2%.
- Inflation in September was 3.1% and pressures on energy prices and the global supply chain means inflation is likely to continue to rise in the short-term. OBR expects CPI to average 4% over the next year and decrease thereafter.
- The Chancellor set out a new Charter for Budget Responsibility to outline how the government intends to keep spending in check. This Charter will have two fiscal rules:
- ensure that public sector debt (excluding debt accrued by the Bank of England) as a percentage of GDP is falling, and
- ensure that UK every day spending is met by regular inflows (i.e. new debt should only be taken on in order to invest in ‘future growth and prosperity).
These fiscal rules should be met by the 3rd year of every forecast period in order to provide the government with the flexibility to deal with unanticipated crises. The Chancellor also announced an intention to spend c. 3% of GDP on capital investment in the future.
- With the above Charter in mind, borrowing as a percentage of GDP is forecast to fall from 7.9% in 2021 to 3.3% in 2022 and then fall to 1.5% in the following four years. Additionally, underlying debt is forecast to be 85.2% of GDP in 2021/22 with it projected to peak in 2023/24 at 85.7% before falling in the final three years of the forecast period ending at 83.3%.
- Corporation Tax remains set to increase to 25% (from 19% at present) in April 2023. This change will apply for businesses with profits in excess of £250,000. For those businesses with profits less than £50,000, the rate of tax will remain at 19% with a step increase to 25% for businesses with profits between £50,000 and £250,000.
- New legislation will be introduced to encourage self-employed individuals and partnerships to align income tax basis periods with the UK tax year if they aren’t already running their financial year on this basis. This legislation has an aim to align all basis periods from April 2024 with transitional rules in place for the 2023/24 tax year. If a business chooses not to align their basis period with the UK tax year, then it will be required to allocate profits across two tax years.
- Visa reforms are being introduced to attract highly skilled migrants to the UK under a new ‘Scale-up’ visa which will launch in Spring 2022 and will aim to help the UK’s fastest growing businesses to access overseas talent. Alongside the visa reforms, the government will launch a Global Talent Network to specifically bring highly skilled people in the areas of science and technology to the UK. An increased investment will also be made to strengthen the skills of adults in the UK to ensure individuals remain competitive against overseas talent.
- The Chancellor announced a £1.4 billion Global Britain investment fund to attract overseas investment to the UK economy. In a bid to promote jobs and ensure investment and innovation in the UK, the government will launch a new consultation on Corporate Re-domiciliation to explore ways to make it easier for companies to relocate to the UK.
- As part of the move to attract increased investment funds to the UK, there is proposed legislation from the government governing Qualified Asset Holding Companies (QAHCs) providing some areas of attractive taxation. A QAHC must be at least 70% owned by diversely owned funds — these must be managed by regulated managers or certain institutional investors and they must exist to help move capital, income and gains between investors and underlying investments. There was a question about how income recognition might be treated for remittance basis investors but it now appears that the government intends to allow for taxes to be based on the underlying breakdown of UK and overseas income and gains within the holding company itself.
Savings and Investments
- As announced in September 2021, there will be an increase in dividend tax rates by 1.25% from April 2022. The dividend rates from this point will be as follows (Trust tax rates will generally align with the additional rate band):
o Basic Rate – 8.75%
o Higher Rate – 33.75%
o Additional Rate – 39.35%
- The Starting Rate band for savings will remain at the current level of £5,000 for 2022/23.
- In 2022/23, State Pension benefits will increase by the higher of CPI or 2.5%.
- The Capital Gains Tax Allowance will remain at £12,300 for individuals (£6,150 for most Trusts) until April 2026.
- The annual allowance for Adult ISA’s and Junior ISA’s will remain at £20,000 and £9,000, respectively, for 2022/23.
- The current pension lifetime allowance will remain at £1,073,100 and will remain frozen until April 2026.
- A 2020 consultation on pensions tax relief administration concluded to fix an anomaly for how lower income taxpayers receive tax relief top up payments when participating under a net pay pension arrangement as opposed to a relief at source pension arrangement. This will be fixed from 2024/25 onwards.
- No changes have been announced with respect to Inheritance Tax - the Inheritance Tax Nil Rate Bands will remain at existing levels until April 2026. This includes the Nil Rate Band for all assets of £325,00 as well as the Main Residence Nil Rate Band of £175,000. Therefore, the qualifying estate of a surviving spouse and civil partner can continue to pass on up to £1 million before any Inheritance Tax liability is assessed.
- The Main Residence Nil Rate Band will continue to taper at £2,000,000 and will be fully phased out with estates valued in excess of £2,350,000.
Personal Tax and National Insurance
- As announced in September 2021, a new Health and Social Care levy of 1.25% will apply to Class 1 and Class 4 National Insurance Contributions (NICs) and to the main and additional rates. The levy will not apply to Class 2 or Class 3 NICs and will come into effect from April 2022.
- The government will use the September CPI figure of 3.1% to increase the National Insurance threshold for 2022/23. This will not apply to the Upper Earnings Limit and Upper Profits Limit which will be maintained in line with the higher rate income tax band noted below.
- The 2021/22 Personal Allowance threshold of £12,570 will remain frozen until April 2026.
- Alongside the Personal Allowance, the 2021/22 Higher Rate Income Tax Band of £50,270 will remain frozen until April 2026.
- From today, the window for any individual selling UK residential property with a Capital Gains Tax bill to pay will increase from 30 days to 60 days after the date of completion. This deadline will also increase for non-UK residents who sell real property located in the UK.
These are just a few of the changes that were outlined today along with confirmation of what remains without change from prior announcements. If you have any questions about the implications of these changes on you, please do not hesitate to contact your Wealth Manager.
Source of economic data: The Office of Budget Responsibility; Source of budget information: Chancellor Sunak’s budget speech to the House of Commons 27 October 2021
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