Budget 2021: What it means for your money

Chancellor Rishi Sunak promised that cutting taxes would be “my mission for the rest of this Parliament” by setting new fiscal rules in Wednesday’s budget to get the UK economy back on track, cut borrowing and spending To keep check.

With a focus on “leveling” rather than headline-grabbing giveaways, the Chancellor said fiscal prudence was the best way to avoid “higher taxes tomorrow” – but as the cost of living fell, he managed to leave room for a $ 2 tax Billions of pounds to be found raffle for the least paid.

Here is a summary of how the top actions will affect your personal finances:

tax

The crucial tax change – a manifesto-breaking promise to raise the social security rate – became known long before the budget and was barely mentioned in the Chancellor’s speech.

Starting next April, it will be increased by 1.25 percentage points for employees and self-employed with incomes above £ 9,568.

A similar increase also applies to employers’ social security contributions. From April 2023, the higher NICs rate will apply to people who work beyond the statutory retirement age.

The Treasury Department had also previously announced a dividend tax hike – which will rise 1.25 percentage points from April 2022.

A feared adjustment of the capital gains tax did not materialize, however. There have been no major tax changes for the self-employed either, despite the Chancellor’s suggestion last year that more taxes should be paid on the support they received during the pandemic.

occupation

The Chancellor promised to give the UK a raise, confirmed that the national living wage would rise to £ 9.50 next April and paved the way for public sector pay rises for 5 million workers next year – though not yet known is whether this will outperform inflation.

The national minimum wage for people aged 21-22 will be increased from £ 8.36 to £ 9.18 an hour, while the apprentice rate will be increased from £ 4.30 to £ 4.81 an hour.

The real surprise, however, was cutting the general credit cut to “make work pay” for millions more working families. Currently set at 63 percent, the taper reduces universal credit by 63 pence for every pound earned above a certain threshold. The Chancellor will reduce this to 55 percent by December 1 of this year and increase the work allowance by £ 500.

He claimed this would help 2 million working families who, on average, would be better off by £ 1,000 a year.

© Clare Mallison

property

There were no changes to the stamp duty headlines as Sunak focused its fire on measures – several of which were previously flagged – to encourage housing construction and resolve the facade crisis.

As part of the Affordable Housing Program, a fund totaling 11.5 billion homes was set up.

A facade tax of 2 billion developers will be charged a 4 percent levy to help create cladding solutions that will make them more than £ 25 million in profit.

Pensions

The Chancellor resisted the urge to tinker with savings allowances that regulate how much can be paid into a pension or increased before taxes are levied.

The lifetime allowance remains frozen at £ 1.073m, a level that will remain in place until 2025/26.

The standard annual savings amount remains at £ 40,000. However, this may be reduced or “reduced” to up to £ 4,000 for individuals whose “marginal income” (pre-tax annual income less any personal pension contributions) is greater than £ 200,000.

The Treasury Department has also made proposals to top up the pensions of millions of low-income savers.

Currently, due to a tax anomaly, those who save into their pension through net wage schemes (NPA) cannot receive a tax bonus on their contributions if they earn less than the tax exemption limit.

In the budget documents, the Treasury Department has set plans for a year-end increase of 20 percent that will apply to contributions paid from the 2024-25 tax year.

The government estimates the move will result in an estimated 1.2 million people potentially benefiting from an average of £ 53 per year.

Savings and investments

With unchanged certificates on Isas (individual savings accounts), the most important news for savers was the introduction of the first green savings bond for private investors.

The bonds, to be launched by National Savings & Investments, the state-sponsored austerity program, will raise funds for the government’s environmental spending and form an important part of the green finance plans set out by the Chancellor in the March budget.

However, personal financial analysts warn that the offered interest rate of 0.65 percent may be too low to compete with competing savings products in the market.

The Chancellor also warned of a likely rise in inflation, which worries investors. The Bureau of Budgetary Responsibility predicts inflation will average 4 percent next year, Sunak said.

He described spike in inflation as a global phenomenon driven by supply chains and energy supplies struggling to cope with rising demand for Covid. “The pressures from the supply chain and energy prices will take months to subside,” he said.

Cost of living

A planned fuel tax hike was canceled amid soaring gasoline prices, which the Chancellor said would save £ 15 on fuel costs for an average car.

However, no additional measures were taken to help households struggling to pay for heating bills in winter.

The “feel-good factor” of the budget was a massive change in the alcohol tax, which will lower taxes on English sparkling wine, rosé, fruit wine and draft beer.

The Chancellor promised this would help UK pubs, although some pub groups have already warned that the cost of a wage increase could add 30p to a pint.

Reporting by Claer Barrett, James Pickford, Emma Agyemang, Josephine Cumbo and Joshua Oliver

That’s how the experts saw it

Nimesh Shah, managing director of the auditing company Blick Rothenberg

Nimesh Shah

This is what happens when you have two budgets in one year – you run out of things to talk about. Rishi Sunak had already brought us the bad news – the personal allowance freeze, a 25 percent increase in corporate income tax, and £ 114 billion in health and social security contributions.

Previously announced bad tax news and a stronger-than-expected economic recovery gave Sunak an opportunity to flex its fiscal muscles. It did this by temporarily easing infrastructure investment wallets and limiting business incentives.

The Chancellor proclaimed this to be a budget for working families. It was not. A family of four with one working parent earning £ 62,000 will be off £ 649 a year from 2022-23 than 2010-11, with all the tinkering with tariffs, allowances and thresholds.

There was good news for someone selling a second home or property for sale as they now have 60 days to report and pay capital gains tax – it was 30 days – but it really should be 90 days. The budget for next March will offer a lot more and I’ll tune in again.

Christine Ross, Client Director at Handelsbanken Wealth & Asset Management

Christine Ross

The fact that the Chancellor has not made any changes to pension taxation will be a relief for many. The recent suggestion by the Institute for Fiscal Studies that the current retirement system is too generous for death benefits has held their breath at many savers near or near retirement.

The current contribution-based retirement savings can be passed on to the beneficiaries tax-free in the event of the death of the insured before the age of 75. In the event of death after the age of 75, the beneficiary pays taxes at his own rate when withdrawing funds. In no case is inheritance tax payable. This benefit remains in favor of those who have transferred from defined benefit pension plans.

It’s good news that overall retirement rules have not been adjusted, which is just to discourage retirees. In fact, raising the minimum wage will push many more people to automatically enroll.

An adjustment of the inheritance tax relief also seemed to be considered, although the recommendations of the Office for Tax Simplification are now two years old. One of the proposed measures was to replace the various annual donation allowances with a single annual allowance. This would have had the greatest impact on those who gave away their excess income either from income or investments.

Michael Martin, Private Client Manager at Seven Investment Management

Michael Martin

The expected tax reform did not occur. Given an uncertain winter, we needed an optimistic budget.

Changes in capital gains tax, which were published in the whitepaper in better times, are still to be expected. But here the October budget is awkward. It is very difficult to make large tax changes in the middle of the tax year. But those have to be in the pipeline, so be prepared for an announcement in March 2022, with possibly a year window to crystallize profits (in a boost to the treasury) before the higher tax rate goes into effect.

The most interesting aspect for me was Sunak’s comment “more than 4 percent inflation”. Try to calculate your personal inflation rate – it is usually much higher than the advertised rate. With an official rate of 2 percent, a lot of my clients were 6-7 percent, so that’s the biggest concern.

As a fruity cider drinker, it’s a great budget for me that I didn’t think I would write today. But the message from this budget is that people can carry on as they are, which I am sure the Chancellor intended.

Ayesha Ofori, real estate investment specialist and founder of PropElle Network

Ayesha Ofori

Sunak introduced a 4 percent property development tax – the Building Safety Levy – to fund a £ 5 billion program to replace unsafe linings for tenants. Although the tax rate was new information, I think developers – or those with profits over $ 25million

Does it seem fair? It seeks contributions from the companies that can most afford it and who arguably contributed to the problem – so I think it makes sense.

Is it too complex to implement effectively? This is less clear. Auditors and tax advisors will roll up their sleeves and worry about how the profit declaration can (legally) be massaged to reduce tax liability.

Will it eventually increase the expected amount? It is expected to raise £ 2 billion over 10 years, compared to a £ 10 billion cost discussed by activists. So it is likely to play only a minor role in solving the crisis. If it doesn’t live up to expectations, I’m afraid that the begging bowl to cover a shortfall will end up with the taxpayer.

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