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Autumn Budget 2021

10 min read 27 Oct 21

The chancellor has delivered his Autumn Budget.

Along with the Spring Budget and the “mini-budget” of the dividend tax and National Insurance increases, a precursor to the social care levy, we now know what the next little while looks like for the financial planner.

One of the key standouts for the financial planner was the projected inflation figures with the knock-on effect on those looking to sustain incomes from their investments and the further dent it will make on accumulated cash holdings.

Whilst not in the speech there are always things to be aware of from the greater detail in the “big red book” and wider budget documents which you can read below.

Our rates, bands and allowances page has all the details of the rates, bands and allowances for 2022/23.

The Chancellor delivered his “big freeze” budget on 3rd March 2021.

The key announcements affecting the financial planner was a much-anticipated change to Corporation Tax and a freezing of tax bands and allowances until 2025/26.

What did the Chancellor say?

The chancellor announced lifetime allowance (LTA) limits for pensions savings will be frozen at £1,073,100 until 5 April 2025.  Nothing was announced for annual allowance (AA) rules which means the standard AA remained at £40,000, the Tapered AA between £4,000 and £40,000 and the Money Purchase AA at £4,000.

In relation to corporation tax, the Chancellor announced the rate will remain at 19% for the years starting 1 April 2021 and 1 April 2022 but from 1 April 2023, the headline (i.e. main) corporation tax rate will be increased to 25% applying to profits over £250,000. Note that these measures do not impact the 20% ‘tax credit’ on UK bonds available to individuals, trustees and corporate investors.

With effect from 6 April 2021 the Personal Allowance and higher rate threshold (HRT) increased in line with CPI to £12,570 and £50,270 respectively and will remain at these levels until 5 April 2026.

The dividend nil rate allowance, the 0% starting rate for savings or the personal savings allowance were also frozen at 2020/2021 levels.

National Insurance Contributions (NICs) thresholds increased in line with CPI from 6 April 2021, bringing the NICs primary threshold/lower profits limit to £9,568 and the upper earnings limit (UEL)/upper profits limit (UPL) to £50,270, in line with the income tax higher rate threshold. The UEL/UPL will then remain aligned with the higher rate threshold at £50,270 until April 2026.

The CGT annual exempt amount (AEA) will remain at £12,300 for the next five years for individuals and personal representatives. For most trusts, the limit will be £6,150.

In relation to inheritance tax, both the nil rate band and residence nil rate will remain at existing levels of £325,000 and £175,000 respectively until 5 April 2026. The residence nil-rate band taper threshold continues at £2 million.

What does this mean for the planner?

The “big freeze “ will see rising tax receipts so more people looking for more tax planning. Good news as there has been no substantive rule changes to take into account so should be BAU.  Those involved with corporate clients will have to take into account the impact of the corporation tax changes on clients remuneration strategies and any investment held within the corporate entity.

You can find a more detailed analysis of the Spring Budget 2021 in our Budget articles from March 2021

The budget revealed the solution to the governments manifesto promise to fix the “net pay anomaly” where those that have income below the personal allowance obtain no tax relief on pension contributions to a net pay scheme, but those with the same earnings paying into a Relief at Source (RAS) scheme do.

What did the Chancellor say?

Whilst this was not specifically called out by the chancellor in his speech, the response to a consultation on pensions tax relief administration was published along with the approach that the government will be taking.

The solution to this will apply from the 2024/25 tax year, and once the tax year is over those that are eligible (i.e. those with earnings below the personal allowance that have contributed to a net pay pension) will receive a “top up” payment equivalent to 20% tax relief for their pension contribution in the 2025/26 tax year. Despite being called a top up, this will actually be a payment to the individual rather than enhancing the payments made to the pension.

This will benefit an estimated 1.2m individuals by an average of £53 a year.

Further detail will be needed for those that are subject to the Scottish and Welsh rates of tax, as these can be different to Northern Ireland and England (although presently the Welsh tax rates are the same). Scotland currently has a starter rate of tax at 19% which is below the 20% on which these calculations will be based. The UK government is open to discussing this with the Scottish government.

What does this mean for the planner?

From a planning perspective, this doesn’t change much. The implementation of auto-enrolment has led to many more being caught in such a trap if their earnings are low and their employer has a net pay pension scheme.

Whilst this does cost those affected more to get money into pensions, if there are matching employer contributions (or even perhaps a defined benefit pension) then it’s likely to be best to maintain contributions even before this change is implemented. It simply means that at some point in the 2025/26 tax year (and beyond) these individuals will get a little bonus back from HMRC.

From 2015 (2014 for local government schemes excluding Scotland) members of public sector pension schemes were moved to schemes where future accrual was based on career average revalued earnings (CARE) rather than final salary. Transitional protection was put in place for members who were between 10 and 14 years of Normal Pension Age to protect their benefits however this prompted claims of age discrimination.

In 2018 the Court of Appeal ruled in McCloud v Ministry of Justice that the transitional provisions did indeed give rise to unlawful age discrimination. The government accepted that the difference in treatment would be remedied across public service pension schemes regardless of whether members had made a claim.

Affected members are now given a choice at retirement as to whether during the “remedy period” (1 April 2015 to 1 April 2022) benefits accrued should be based on the rules of the old final salary scheme, or the new scheme. The option selected will likely result in different benefit values which has a knock-on effect on areas such as their Annual Allowance and Lifetime Allowance.

What did the budget cover?

As announced in the government’s Tax Policies and Consultations Command Paper published on the 23rd March 2021, the government has confirmed in the accompanying budget literature that they will introduce legislation to extend Scheme Pays reporting and payment deadlines in light of age discrimination suffered by members of public sector pension schemes.

 Further detailed secondary legislation will also be published in areas such as:

  • providing an exemption to a tax charge on the compensation an individual may receive if, following the remedy, they are owed money

  • allowing an individual to protect their pension rights from lifetime allowance charges calculated on the higher of the two pension choices available to them

  • additional annual allowance to be available so that an individual will not pay more annual allowance charge than they would have done if they had accrued their chosen benefits in the relevant tax years

  • where a scheme has paid lifetime allowance or annual allowance charges on behalf of the individual, but that accrual is now under a different scheme, for the payment to be deemed to have been paid by the latter scheme, and

  • ensuring that payments of pensions and lump sums that would have been authorised payments had they been made at the relevant time, are treated as meeting the conditions to be authorised. 
What does this mean for the planner?

This is something to be aware of when dealing with clients who were a member of public service pension schemes prior to 31st March 2012 and still serving as at the 1st April 2015. 

It could have many knock impacts for those assisting clients in making their “deferred choice” and planners will need to keep up to date as the new legislation unfolds.

The good news is if those changes create retrospective annual allowance charges then the government will extend the deadline for scheme pays to when the scheme administrator is notified of the charge. Schemes will now be required to pay the AA charge where the charge has arisen due to a “retrospective change of facts” and the charge is £2,000 or more.

Increase to the rates of income tax applicable to dividend income
What did the Chancellor say?

As announced on 7 September 2021, the government will legislate to increase the rates of income tax applicable to dividend income by 1.25%.

The dividend ordinary rate will be 8.75%, the dividend upper rate will be 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.

The changes will apply UK-wide and will take effect from 6 April 2022.

In England, revenue from this increase will help to fund the health and social care settlement announced in September.

What does this mean for the planner?

Firstly, it means getting used to the fact that the dividend rates in place since April 2016 will no longer apply i.e. currently 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively.

No change though to the dividend ‘allowance’ (strictly a ‘nil rate’ rather than an allowance) which has been set at £2,000 since April 2018. Dividends within the nil rate are charged at 0% and this will remain the case.

These changes will impact company shareholders, individuals investing in ‘equity’ OEICs and trustees of discretionary trusts. For the avoidance of doubt, dividends received by onshore and offshore life funds are exempt from tax (subject of course to any irrecoverable withholding tax).

National Insurance Contributions (NIC) rates and thresholds
What did the Chancellor say?

Also announced on 7 September 2021, the government has legislated for a new 1.25% Health and Social Care Levy to fund investment in the NHS and social care. The Levy will apply UK wide, to the same population and income as Class 1 (Employee, Employer) and Class 4 (Self Employed) NICs, and to the main and additional rates.

The Levy will not apply to Class 2 NICs or Class 3 NICs. The Levy will be effectively introduced from April 2022, when NICs for working-age employees, self-employed people and employers will increase by 1.25% and be added to the existing NHS allocation.

From April 2023, once HMRC’s systems are updated, the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age, and NICs rates will return to their 2021/22 levels. From April 2023, receipts from the Levy will go to those responsible for health and social care across all parts of the UK.

What does this mean for the planner?

Planners should be aware of these changes and should also be aware that the government will use the September CPI figure of 3.1% as the basis for uprating NIC limits and thresholds, and the rates of Class 2 and 3 NICs, for 2022/23. This excludes the Upper Earnings Limit and Upper Profits Limit which will be maintained at current levels in line with the higher rate threshold for income tax.

ISA and Child Trust Fund limits
What did the Chancellor say?

As announced at Autumn Budget 2021

  • The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000

  • The annual subscription limit for Junior ISAs for 2022/ 23 will remain unchanged at £9,000

  • The annual subscription limit for Child Trust Funds for 2022/23 will remain unchanged at £9,000. 
What does this mean for the planner?

Steady as she goes for subscription limits.