Budget 2021: Tax allowances frozen
In its manifesto for the 2019 election, the Conservative Party promised a ‘triple tax lock’, assuring voters that there would be no increases to the rates of income tax, national insurance or value added tax.
And while the Chancellor stuck to that promise, he did announce changes that affect the personal taxes we pay.
Personal tax allowance
The personal tax allowance is being frozen.
The personal tax allowance is how much you can earn each year before paying income tax, and has increased substantially in recent years. The government had previously committed to increasing the allowance by the rate of inflation each year.
The allowance will increase to £12,570 from its current level of £12,500 in April. But it will then not be increased again before April 2026.
The Chancellor also announced a freeze in the threshold at which people start paying the higher rate of income tax.
The threshold is increasing to £50,270 in April from its current level of £50,000. However, this threshold will then be frozen until 2026.
Svenja Keller, head of wealth planning at Killik & Co., said that freezing these tax allowances and thresholds for five years was a way to keep the manifesto tax pledges, and may appear to have little obvious impact.
She added: “But taking into account inflation and earnings growth, failing to increase allowances will have a real impact on an individual’s net tax position and their wealth.”
The taxes we pay on alcohol have been frozen too.
This is the second straight year in which the duties charged on beer, wine and other alcohol have been left untouched.
It has become a feature of recent Budgets for planned increases in the taxes paid at the petrol pump to be scrapped, and this year’s Budget was no exception.
As a result fuel duties have been frozen for another year.
The move was quickly welcomed by the FairFuel UK campaign group. Howard Cox, founder of FairFuel, commented: “The cost of navigating our roads still remains the highest in the world and drivers continue to be demonised for all environmental ills by mis-informed politicians, but continuing the cap on duty will be warmly welcomed.”
The thresholds at which estates start to pay inheritance tax have been frozen until April 2026.
The threshold currently stands at £325,000 for individuals, doubling to £650,000 for couples.
Capital Gains Tax
There had been much talk in advance of the speech about the potential for wholescale changes to the way Capital Gains Tax works.
Last year the Chancellor tasked the Office for Tax Simplification (OTS) with reviewing the setup for CGT, which led to the publication of a host of recommendations.
However, there was no mention of CGT in the speech.