The Chancellor has just finished presenting his budget speech to the house. The Buckingham Gate team is now busy analysing the budget document in detail and searching for any devil in the details. We will report back on any significant findings that become clear in the coming days, however, as expected, today’s budget was rather benign from a personal financial planning point of view.
Some of the key announcements and our commentary can be found below:
Both the personal allowance and higher rate threshold will be increased to £12,570 and £50,270 respectively from April 2021, but then both allowances will be frozen until 2026. While this is better than some had anticipated (it was widely reported that there would be no increase this year for example), the length of the freeze until 2026 is longer than expected.
This is effectively a ‘stealth tax’ and follows a long-standing tradition of governments simply not index linking allowances rather than reducing them in nominal terms. This is a theme that continues below.
Capital Gains Tax
The annual exempt amount will remain frozen at the current level of £12,300 until April 2026.
Pension Lifetime Allowance
The pensions lifetime allowance will remain frozen at the current level of £1,073,100 until April 2026.
The Nil Rate Band and Residence Nil Rate Band will remain frozen at the current level of £325,000 and £175,000 respectively until April 2026. The level of assets at which the taper to the Residence Nil Rate Band kicks in will also remain at £2 million.
The ISA and Junior ISA allowances will remain at current levels for the time being.
All in all, this is a very quiet budget from a personal financial planning perspective (although do bear in mind the very, very significant interventions for individuals and businesses to assist the recovery from Covid-19).
The main headline from a personal finance point of view is no change, for a long time. Most allowances have been frozen at current levels until 2026! As such, this is a fairly extended period of ‘stealth taxation’. If we assume inflation runs at around 2-3% per annum, this could see the real value of these allowances reduced by around 10-15% in the period up to the end of the freeze.
What is very interesting to us however, is the fact that these allowances have been frozen all the way up to 2026, especially in relation to Capital Gains and Inheritance Tax. Despite heavy media speculation of a big shake up in both areas, today’s policy announcements suggest that the Government can see the current regime in both areas still existing in 2026 at the least.
That is not to say that these things won’t change in the future (of course these kinds of long term policy decisions are often tweaked along the way) however, it does seem that any imminent changes are unlikely given that the Government is legislating based on the current system for the next 5 years!
All in all, keep calm and carry on is our message from today’s announcements.
If you have any questions, please get in touch.
Buckingham Gate Chartered Financial Planners