From a personal tax perspective this Budget was seen as an opportunity for radical reform of personal taxation, but it was very much a Budget of “no change” in this respect. As the Chancellor pointed out, paying for the COVID-19 support packages will be on the agenda for several governments to come so we wouldn’t rule out such changes at a later date when the economy is performing better.

Personal allowances and higher rate tax bands

While individual taxpayers may be breathing a sigh of relief that the Chancellor kept the manifesto promise and did not increase income tax and national insurance rates, he did announce that the tax-free personal allowance (£12,570) and the level of income at which taxpayers begin to pay higher rate tax (£50,270) will be frozen at the 2021-2022 levels until 5 April 2026.

This had been predicted prior to the Budget and had been referred to in the press as a “stealth tax raid”. Recognising that the announcement may attract criticism, the Chancellor advised

“We are not hiding it, I am here, explaining it to the House and it is in the Budget document in black and white. It is a tax policy that is progressive and fair.”

It may be the case that a taxpayers income will not reduce due to the measures, however, taxpayers will pay a cost as it cancels the planned inflationary rises to the personal allowance and the higher rate income threshold which will drag more people into the higher rates of tax if there are inflationary increases in wages.

Capital gains tax and inheritance taxes

Despite much press speculation about changes to the current capital gains tax and inheritance tax regimes, the focus of today’s budget was the “road to recovery” and clearly the Chancellor felt that now is not the right time to introduce significant changes to either regime. There had been an expectation that the Chancellor might act on the recommendations contained in the Office of Tax Simplification report (published in November 2020) which included the realignment of income tax and capital gains tax rates. Indeed, many owner-managed businesses accelerated exit events in anticipation of increased rates or a further restriction in Business Asset Disposal Relief (which also did not materialise).

The reform of inheritance tax has also been under discussion since 2019 and there was speculation that some restriction of Business Property Relief might be announced. However, for now, there is no significant change to the inheritance tax regime. The Chancellor has also resisted calls for a wealth tax to be introduced for high net wealth individuals. It remains unclear whether this is a matter under serious consideration for addressing the significant gap in public finances. It is not currently the subject of any form of consultation.

Stamp Duty Land Tax relief extended

There will be an extension to the temporary increase in the Stamp Duty Land Tax nil rate band for residential property in England and Northern Ireland. This was due to end on 31 March 2021, however, the nil rate band will continue to be £500,000 for the period to 30 June 2021. From 1 July 2021 until 30 September 2021, the nil rate band will reduce to £250,000. The nil rate band will return to the standard amount of £125,000 from 1 October 2021.

For non-resident buyers the position is complicated by another change. As already announced in Budget 2020, from 1 April 2021 a 2% surcharge will apply to non-UK residents purchasing residential property in England and Northern Ireland. Please note that there is a specific test for establishing residence for these purposes.

Get in touch

If you have any queries on the topics covered above, please contact Kevin Bell, partner, KPMG in Belfast.