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Budget 2021: the repair work begins…

Posted: 03/03/2021

Today the Chancellor of the Exchequer, Rishi Sunak, delivered his Budget and set out the Government’s plans to support businesses and create jobs.

It had been widely anticipated that the Chancellor would announce increases in the rates of capital gains tax and corporation tax, as part of a package of measures needed to repair the profound damage to public finances caused by the pandemic.

It came as no surprise, therefore, that it was announced that, from April 2023, the rate of corporation tax will increase from 19% to 25%, on profits over £250,000. The Chancellor emphasised his view that the UK will remain internationally competitive and attractive to inward investment, as a rate of 25% will still be the lowest rate of corporation tax in the G7. The rate payable by companies whose profits are £50,000 or less will remain at 19%, and the rate will be tapered for companies with profits over £50,000, demonstrating that the Government is keen to support smaller businesses.

The Chancellor highlighted that he is giving advance notice of the rate change, as businesses need certainty. This is a possible indication of how he may approach other tax changes in the future and, certainly, two years’ advance notice of any tax changes would be welcome!

In terms of immediate actions, the Government has extended the timeframe for certain measures it had already introduced. These include:

  • extending the so-called “Stamp Duty Land Tax holiday” which means the SDLT nil rate band for residential property will remain at £500,000 until 30 June 2021. On 1 July 2021, the nil rate band will reduce to £250,000 until 30 September 2021 and on 1 October 2021, the nil rate band will return to £125,000;
  • maintaining the reduced rate of VAT for the UK tourism and hospitability sector for another year – the rate will be 5% until 30 September 2021, and then 12.5% until 31 March 2022; and
  • continuing to provide business rate relief for eligible businesses until the end of June 2021 with reduced relief beyond that date for the remainder of the tax year.

It will have come as a relief to many that there were no significant changes to personal taxation in the Chancellor’s announcements. Most notably, there was no change to capital gains tax rates, as had been widely speculated would happen, and these rates remain historically low. There was also no mention of a wealth tax or changes to the inheritance tax regime generally.

There were a number of effective tax increases:

  • the inheritance tax nil rate band will remain at £325,000 until April 2026. This is disappointing, as the nil rate band has been at this level since 6 April 2009, but is not unexpected;
  • the inheritance tax residence nil rate band, introduced in April 2017, will also remain at existing levels (a maximum of £175,000 per person) until April 2026;
  • the capital gains tax annual exempt amount will remain at the current level of £12,300 (or £6,150 for trusts) until April 2026;
  • the income tax personal allowance will increase to £12,570 on 6 April 2021, and the higher rate threshold will also increase to £50,270. However, both of these allowances will then be frozen until April 2026.

What’s next?

On 23 March 2021, the Government will publish its “Tax Policies and Consultations” paper. The government has given no real indication as to the substance of the paper, but it may use this as an opportunity to push forward with a number of ongoing tax consultations and reviews including:

  • its consultation document on the taxation of trusts (which closed in 2019); or
  • the ongoing separate reviews by the Office of Tax Simplification in relation to inheritance tax and capital gains tax reform and simplification (published in 2018/2019 and 2020 respectively).

It is worth noting that the Government has stated that none of these announcements will require legislation in the Finance Bill 2021 or have an impact on the Government’s finances so we are unlikely to see any tax increases (or decreases) on this date. We will study the paper with interest and provide our thoughts on the implications for clients in due course.

Should you have any questions relating to the measures announced today, do not hesitate to get in touch with a member of our private client team.

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