The 2021 Spring Budget was much quieter than expected in terms of tax changes, but there were still some important things to be aware of. What are the key points?
No change. There were rumours of a wealth tax, of capital gains tax hikes and other increases, but the 2021 Spring Budget (see Follow up ) ended up being something of an anti-climax. The government clearly wants economic recovery to be well underway before doing too much tinkering with the tax legislation. The main announcements that will affect you in the short term are the freezing of various allowances and bands. The following will take effect until April 2026:
- personal allowance – £12,570
- basic rate band – £37,700
- CGT annual exemption – £12,300
- IHT nil rate band – £325,000
- IHT residence nil rate band – £175,000
- pension lifetime allowance – £1,070,100.
Companies. The only major change in rates was for corporation tax, which will increase to 25% from 1 April 2023. Companies with profits below £50,000 will continue to pay 19%, and there will be a marginal rate for profits up to £250,000.
Pro advice. Whilst this might seem unimportant currently, as it is two years away, you need to factor it in when looking at potential incorporations now, as the increase in rate will affect profit extraction planning.
Loss extension. A further announcement was that losses arising in 2020/21 and 2021/22 will be able to offset trading profits (from the same trade) in the previous three tax years. There are similar provisions for companies.
Pro advice. In order to benefit from the extension, a sideways loss relief claim must be made first. Any unused loss can then be relieved using the extension, but only against profits from the same trade. If there is no general income to enable a sideways relief claim, the extension can be used directly.
Draw attention to the freezing of various allowances and bands for the next five years. The increase in corporation tax won’t take place until 2023, but make sure you factor it in when looking at incorporations now.
The next step
Tax announcements from the Spring Budget
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.