Budget big freeze
Personal taxes, capital taxes, pensions. No dramatic announcements.
But Chancellors can create considerable change through low-key tactics, and the Budget freeze for various rates and allowances until 5 April 2026 will impact many people.
Initially, the UK-wide personal allowance increases, rising to £12,570 from 6 April 2021. The basic rate band also increases, to £37,700. This means the higher rate threshold – the point at which you start paying higher, rather than basic rate tax in England, Wales and Northern Ireland, increases to £50,270 (if you have a full personal allowance).
But after this date, the personal allowance and higher rate threshold won’t change until 5 April 2026. As incomes go up, this brings more people within the tax net, and pushes some basic and higher rate taxpayers into the higher and additional rate bands. 1.3 million people, in fact, according to government figures, should come into income tax by 2025/26 and one million into higher rates of tax. From the 2026/27 tax year, starting 6 April 2026, the personal allowance and basic rate limit are indexed with the Consumer Price Index by default.
Scottish taxpayers: for Scottish taxpayers, income tax rates and bands for non-savings and non-dividend income are different from the rest of the UK: see here. The freeze to the personal allowance impacts Scotland, although the freeze to the UK higher rate threshold only affects those with savings and dividend income.
Big change postponed?
There’s been much discussion of a major tax overhaul, with inheritance tax (IHT), capital gains tax and pensions contenders for a makeover. It didn’t happen on Budget day, nor the UK’s first ‘Tax Day’, publication day for a raft of tax consultations. What Tax Day did produce was a commitment to reduce red tape for IHT, so that from 1 January 2022, over 90% of non-taxpaying estates shouldn’t complete IHT forms for deaths when probate or confirmation is required.
But sooner or later, change is likely, as the government looks beyond the Covid-19 crisis. Perhaps it has been reined back until 2026, when the big freeze ends. We shall have to wait and see. In the meanwhile, please don’t hesitate to contact us for advice in any of these areas.
Property: what’s new?
Like the extension to the Stamp Duty Land Tax holiday to 30 June 2021 in England and Northern Ireland; the similar announcement in Wales, and absence of one in Scotland, some changes make headlines. But others escape the media spotlight.
Capital gains tax (CGT) 30-day reporting is one of these. The new regime comes into play for any disposals of UK residential property since 6 April 2020, where there is CGT to pay. In such cases, tax must be calculated, reported and paid within 30 days of completion, rather than taking place within the self assessment tax return cycle as before. Relevant disposals in the year to 5 April 2021 should therefore already have been reported.
Reporting is done online, through HMRC’s UK Property Reporting Service. We would be happy to report recent disposals for you, as your agents. Unfortunately, HMRC’s system is not entirely hands-free, and requires you to set up a UK Property Account on gov.uk to authorise us to report for you. This account, it should be noted, is a completely different entity from the Personal Tax Account.
30-day reporting impacts you only if you have CGT to pay. Disposal of a main residence, for most people, will be covered by the CGT relief known as private residence relief (PRR). PRR applies if the property has been occupied as your main residence throughout the entire period of ownership. Scenarios where a CGT liability could arise, and hence a need for a 30-day return, include disposal of a buy-to-let property; a holiday home; property you have inherited; property you’ve never lived in; or have lived in for just some of the time you’ve owned it.
Recent changes have restricted availability of PRR, potentially bringing more property transactions within scope of 30-day reporting. Letting relief, for example, used to give relief up to £40,000 (up to £80,000 for property in joint names) on the sale of property that had, at some point, been used as the main residence, but had also been let as residential accommodation. For disposals from 6 April 2020, the relief is considerably restricted, available only where you live in the property at the same time that it is let out. Rules relating to property transfer between spouses have also changed. The recipient spouse now also receives the period of ownership and history of their property use, and this can have knock-on consequences for PRR. So, too, can change on rules giving automatic relief for the final months of ownership.
Please do talk to us in advance if you are planning property transactions, particularly if you have doubts as to whether full PRR will apply.