The Chancellor has today announced the 2021 Budget which included a number of announcements which may affect private clients and their finances.
The Chancellor has announced that the income tax personal allowance will be frozen from April 2022 until 2026. The basic rate income tax threshold will rise to £12,750 and the higher-rate threshold will rise to £50,270 in April 2022 and will then be frozen at these levels until April 2026.
For inheritance tax, the nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
For pensions, the standard lifetime allowance will be fixed at £1,073,100 until 2026.
The capital gains tax allowance will also be fixed at the current level of £12,300 for individuals, personal representative and certain types of trusts for disabled people and £6,150 for trustees of most settlements until 2026.
Extension to the Stamp Duty Land Tax (SDLT) Temporary Rates
Many of our clients have already been able to make use of the stamp duty land tax temporary rates (the "SDLT holiday"), which were announced by the Chancellor on 8 July 2020. It will come as a relief to those running out of time to complete residential property purchases before 31 March 2021 that the SDLT holiday in its current form has been extended to 30 June 2021.
On 8 July 2020 the amount a purchaser could pay for residential property before SDLT became payable, was increased from £125,000 to £500,000. The £500,000 allowance will now remain in place until 30 June 2021, at which point the allowance will fall to £250,000 for the period 1 July 2021 to 30 September 2021. The allowance will return to the standard amount of £125,000 from 1 October 2021.
Non-UK resident SDLT
From 1 April 2021 non-UK residents purchasing residential property in England and Northern Ireland will pay a 2% SDLT surcharge above the existing residential rates of SDLT. This new surcharge will apply in addition to the 3% higher rates already imposes on individuals who already own other residential property interests.
This is not a new announcement, but is worth noting because it will apply to purchases with an effective date on or after 1 April 2021.
The Chancellor has confirmed a mortgage guarantee scheme to help first-time buyers, who can only afford a 5% deposit, access 95% mortgages. Major lenders will start offering these mortgages from next month.
This scheme will be available when buying properties worth up to £600,000, will apply throughout the UK and will run until 31 December 2022.
Annual Tax on Enveloped Dwellings (ATED)
ATED charges increase automatically each year in line with inflation. The ATED annual charges will, therefore, rise by 0.5% from 1 April 2021 in line with the September 2020 Consumer Prices Index.
The rate of corporation tax will increase to 25% from 2023. The Chancellor also announced the introduction of a small profits rate of 19% for financial year April 2023 which will apply to taxable profits of £50,000 or less. Companies with profits of £50,000-£250,000 will be taxed at 25% but will be able to claim marginal relief.
The Chancellor also announced a temporary extension for both incorporated and unincorporated businesses to carry back trading losses from one year to three years. The extension will apply to a maximum of £2,000,000 of unused trading losses in each of the current and next tax years for unincorporated business (with a similar maximum limit applying for companies).
Self-assessment returns – new penalty regime
Under the current rules where a return is submitted late, there is an automatic £100 penalty with further penalties being imposed depending on how late the return is filed. The revised regime will be points based with a taxpayer becoming liable to a fixed financial penalty of £200 only after they have reached the points threshold. This threshold will depend on the frequency a taxpayer needs to submit a return. Every time a submission deadline is missed a point will be incurred. For those filing annually it is 2 points with the result that if every year the return is filed late there will be a £200 penalty for that return as the taxpayer will always have at least two points.
Currently there are also surcharges for the late payment of tax with the first being imposed 30 days from 31 January (the usual payment due date). The revised regime will impose two charges. The first is a penalty of 2% of the outstanding tax if tax is paid between 16 days and 30 days of the due date which rises to 4% of the outstanding amount if there is still any unpaid tax after 30 days. The second charge will also become payable from day 31 and it is based on the outstanding tax and is calculated on a daily basis.
For taxpayers with business or property income of over £10,000 who are required to report quarterly, this will apply to accounting periods starting on or after 6 April 2023 and for all other self-assessment taxpayers to accounting periods starting on or after 6 April 2024.
The new rules will also apply to VAT returns for accounting periods beginning on or after 1 April 2022.
Working from home and home-office related equipment
Prior to the start of the pandemic, working from home was not actively promoted. Therefore if an employee acquired home office equipment which enabled them to work from home and their employer reimbursed them, then the reimbursement was effectively seen as a benefit. The result is that it would be subject to income tax and NIC. However, in light of the effect of the pandemic on working habits and to promote working from home, a temporary measure was introduced in June 2020. This provided that where an employee obtains equipment for the sole purpose of being able to work from home due to the Covid outbreak, and their employer reimburses them then it would be exempt for income tax and NIC.
It was intended that this temporary exemption would cease on 5 April 2021, but due to the on-going nature of Covid this exemption is to continue until 5 April 2022.
New reporting rules for digital platforms
The Government has previously expressed concern about a lack of reporting from taxpayers who provide services on online platforms and today announced new measures requiring online platform managers to report information to HMRC about the income of sellers on their platform. This is primarily targeted at taxpayers who provide services through online platforms such as Uber and Deliveroo, although it will also affect individuals who let out holiday accommodation through platforms such as Airbnb.
The announcement said that the new rules will not at present extend to platforms where taxpayers sell goods rather than services, such as eBay, but the Government is keeping this under review and may extend the measures in the future if needed.
Tax consultations papers – 23 March 2021
The treasury has announced that they will publish a number of tax-related consultations on 23 March 2021. These would usually be published at the time of the budget; for whatever reason they have been delayed. The consultations are described as "an important part of the government's ten year tax administration strategy to create a tax system fit for the challenges of the 21st century". In the recent past the treasury / HMRC have used consultations to propose significant or complicated tax changes some time in advance of their introduction, while inviting comments from professionals advising on tax and other interested parties. Whether the delay in publication is on account of significance, complexity, the treasury's stated aim of allowing "more transparency and scrutiny" or a combination of all these factors will become clear on the 23 March 2021.