Budget 2021 | Private Client and Personal Tax changes
Our Private Client Tax team delve deeper, exploring the key announcements of the 2021 Budget.
Private Client and Personal Tax announcements from the 2021 Budget
Self-employed grants for the newly self-employed in 2019/20
- This group of individuals missed grant funding when COVID-19 hit, as they had no proof with HMRC that they were self-employed.
- Provided their self-assessment returns for 2019/20 have now been filed, these individuals can now claim the 4th and 5th grants.
- 4th grant covers period from February until April, available from late April and 5th grant covers May until September, to be claimed from late July.
- 4th grant available will be 80% of three months’ average profits, capped at £7,500 paid out in a single payment.
- Final grant will be based on a turnover test, so more targeted. Those whose turnover has dropped by at least 30% will be eligible to claim up to 80% of a three month average trading profit, but those whose turnover has not dropped as much will only be eligible to claim 30%, capped at £2,850.
- It has been confirmed that grants are taxable in the year in which they are received.
- As this is taxable income, possible knock on effects are that it should be pensionable income, but could also impact on things like the clawback of child benefit.
- Finally some support for a group of people who fell into no man’s land from March last year.
Temporary extension to carry back of trading losses for Income Tax
- Trading losses made by unincorporated business in tax years 2020/21 and 2021/22 will be eligible for loss carry back relief.
- The losses can be carried back against the profits of the same trade for a period of three years instead of the usual one year period.
- A £2m cap will apply to the extended carry back of losses for each tax year.
- With temporary closure of businesses during the national lockdowns, this measure could prove to be an additional lifeline for some unincorporated businesses to obtain tax repayments from prior years to ease cash flow.
Pension Standard Lifetime Allowance to be frozen
- The pension standard lifetime allowance which was due to increase in line with the Consumer Price Index has been frozen at £1,073,100 for tax years up to 2025/2026.
- Pension benefits over the lifetime allowance attract a tax charge at 25% if the excess is taken as a pension or 55% if taken as a lump sum.
- The freeze will affect high earners as their pension pot continues to grow and consideration should be made with regards to whether pension contributions should continue.
- By way of reminder, the amount of pension contribution that can currently be made is limited to £40,000 but this is tapered down as low as £4,000 for the highest earners.
- When assessing the tapered allowance, individuals must consider all their income sources and therefore, as well as salary, it includes all taxable income, such as investment income which can sometimes catch individuals out.
Penalties for late submission – new points-based late submission penalties
- The Government is reforming sanctions for late payment and late submission to make them fairer and more consistent across taxes.
- Changes will initially apply to VAT and Income Tax Self-Assessment (ITSA).
- The new late submission penalties will affect those who fail to meet their obligations to provide returns and other information requested by HMRC on time.
- Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission obligation.
- Instead they will incur a certain number of points for missed obligations before a financial penalty is levied.
- It is designed to be proportionate penalising only the small minority who persistently miss their submission obligations.
- Applies to VAT customers for accounting periods beginning on or after 1 April 2022.
- Applies to ITSA customers with business or property income over £10,000 per year (and required to submit digital quarterly updates via MTD) for accounting periods beginning on or after 6 April 2023.
- Applies to all other ITSA taxpayers for accounting periods beginning on or after 6 April 2024.
- One point will be received each time a deadline submission is missed.
- At a certain threshold of points, a financial penalty of £200 will be charged.
Social Investment Tax Relief
- This relief has been available to individuals investing in Social Enterprises.
- It will come as welcome news to many organisations who have benefited from this type of investment that the relief available to individual investors, which was due to end on 6 April 2021 for both Income Tax and Capital Gains Tax purposes, will now be extended until 6 April 2023.
Capital Gains Tax (CGT) – Annual Exempt Amount will remain at current level to April 2026
- There will be no increase or reduction in the tax-free amount for Capital Gains Tax from the current level until April 2026.
- This annual tax-free amount will therefore remain at £12,300 for individuals, personal representatives and some Trusts and £6,150 for all other Trusts.
- Private clients are now in a position to carefully consider their assets in the round to make decisions when selling their assets or passing their wealth on to the wider family.
Stamp Duty Land Tax (SDLT) – extension to the temporary SDLT holiday
- Up to the end of June 2021 there will be no SDLT on the first £500,000 for purchases of homes in England and Northern Ireland, where this is the purchaser’s sole residence. The 3% surcharge will remain in place if this will not be the purchaser’s only residential property or if the purchaser is a company.
- From 1 July to the end of September 2021 the holiday amount reduces to £250,000.
- Importantly both the new dates of the end of June and September are ‘cliff edges’ so a purchase must be completed to take advantage of the SDLT holiday.
- The above does not apply to Scotland where the LBTT or to Wales where the LTT will return to the usual rates from 31 March 2021.
- This is not only a great boost for those people seeking to get onto the property ladder, especially in conjunction with the news that 95% LTV mortgages will soon be available again, but also good news for those looking to move.
- In addition to this, for those people with a personally held rental property portfolio it extends the timeframe to consider whether incorporating their property business is worthwhile whilst there is not a punitive upfront SDLT charge to doing so.
Wealth Tax – no changes announced
- As expected from pre-Budget leaks, the Chancellor has not introduced a wealth tax.
- This is good news and leaves wealthy taxpayers with more funds to stimulate economic growth through investment. The Chancellor has clearly recognised the draining nature of wealth taxes, which can place an undue burden on asset-rich, but cash-poor taxpayer.
Expats/Non-doms – new visa scheme and tax residency
- Reforms to the immigration system have been announced to attract talent to the UK, particularly in academia, science, research and technology.
- The UK has an attractive tax regime for non-domiciled individuals, with tax relief available for overseas workdays for up to three tax years of tax residence, a remittance basis of taxation available free of charge for up to seven tax years of UK tax residence and a remittance basis available at a charge for up to 15 out of 20 years of UK tax residence. Combined with an attractive visa application process, this could go a long way to attract highly skilled individuals to the UK from higher tax jurisdictions.
- Notable by its absence was any mention of further flexibility in the tax residency rules for individuals who have been accidentally caught in the UK due to COVID-19. Currently the number of exceptional days allowed under the legislation is limited to a maximum of 60, where the qualifying conditions are met.
Inheritance tax – nil rate band frozen
- The Chancellor did not announce any changes for IHT other than to freeze the nil rate band of £325,000 and residence nil rate band of £175,000 until April 2026. The nil rate band has now been frozen at the same level since 6 April 2009, resulting in increasing numbers of estates being brought within IHT, particularly in London and the South East. This measure is expected to raise £985m and highlights the need to take timely advice.
- We may see further announcements as part of “Tax Day” on 23 March 2021, particularly regarding simplification of lifetime gifts and the interaction of IHT with Capital Gains Tax.
Want to know more?
Across all areas of Tax, our experts have been commenting on their "first thoughts" of the 2021 Budget announcements. To read more, please use the following links:
Have you been affected by the Budget?
If you have any queries regarding the Budget 2021 announcements and the impact they may have on your organisation, please get in touch with your usual Azets contact or a member of our Private Client team.
Watch our webinar
On 4 March 2021, our expert advisors explored the technical issues arising from the 2021 Budget and provided a practical assessment of the key announcements and their impact for both businesses and individuals. As ever with the Budget, the devil was in the detail. Our presenters also highlighted issues the Chancellor may not have made obvious in his address to Parliament.
To watch our webinar recording and download a copy of our slides, click here.