The UK Chancellor positioned the Budget as heralding “a new age of optimism”, but it is fair to say that hard-pressed taxpayers could be forgiven for thinking otherwise.
Although rates of pay are climbing and seem set to rise further, for many these gains are likely to be eaten away over the coming years by inflation, tax increases and rising mortgage costs.
Delivered against the backdrop of the UK’s ongoing recovery from the Covid‑19 pandemic and the evolving relationship between the UK and the rest of the world following Brexit, the October 2021 Budget and Spending Review was Rishi Sunak’s second opportunity this year to ‘shape the UK economy’.
Unusually many of the Autumn Budget measures were announced in advance, on top of the tax raising that was revealed in the March 2021 Budget.
What we already knew:
Main allowances, thresholds and exemptions for Income Tax, Capital Gains Tax and Inheritance Tax are frozen until April 2026.
- The Pensions Lifetime Allowance of £1,073,100 is frozen until 2025/26.
- A temporary 1.25% increase in Class 1 and Class 4 National Insurance Contributions in 2022 to 2023 only to fund the Health and Social Care Levy will be followed in April 2023 by the new 1.25% Health and Social Care Levy which will be paid by individuals, including those over the State Pension Age.
- The Office of Tax Simplification (OTS) reviews of Capital Gains Tax and Inheritance Tax have been published.
And what the Chancellor told us on 27th October 2021:
- The government has provided £378 billion of direct support for the economy over the last year, including supporting 11.7 million jobs.
- The Chancellor has written to the Governor of the Bank of England reaffirming the 2% consumer price inflation target which may lead to rising interest rates before long.
- Low earners will benefit from the proposed correction in the Pensions net pay scheme as they currently do not receive tax relief on contributions.
- Apprenticeships and Lifetime Skills Guarantee received additional funding including a new ‘Multiply’ programme to improve adult numeracy skills.
- Universal Credit taper rate was reduced from 63% to 55%, as well as increasing work allowances, effectively increasing the net retained income.
- The time to report and pay Capital Gains tax on property sales is to increase from 30 days to 60 days from completion.
Having announced revenue raising measures prior to the Autumn Budget, the Chancellor was able to focus on spending. The measures show clear emphasis on supporting targeted individuals and businesses through the next phase of the pandemic. For those living in the UK, the rules for how much you can invest in tax efficient pensions and ISAs remain unaffected.
Although the Chancellor committed to reducing taxes by the end of this Parliament, we will first need to navigate through the increased cost of living predicted, and higher taxation previously announced.
With so much spending announced and the coming impact of environmental reforms, it seems almost inevitable that there will be further tax changes to come. Given the commitment to reduce taxes before the election, future changes are likely to impact wealth rather than income – so watch out for changes to Inheritance Tax and Capital Gains Tax.
The key question for us all is what steps we can consider to protect ourselves from the impact of likely future tax rises.
To find out what steps you could take, speak to your AAM Wealth Manager or email [email protected].
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