RISHI Sunak promised a Budget to protect jobs and livelihoods, but some fear that his coronavirus Budget will leave many of us worse off over time.
While there is good news for people on furlough and those buying a home and benefitting from the stamp duty cut, there are far-reaching implications for many of us from decisions to freeze key allowances until 2026 - the end of this Parliament. Here are the key things that might impact your wallet.
Income tax and capital gains thresholds frozen until 2026
Many of us will fall victim to so-called ‘fiscal drag’ after Rishi Sunak confirmed he would freeze income tax threshold.
Rishi announced that the rate at which people start to pay income tax will be raised from £12,500 to £12,570 and the point at which people start to pay the higher 40p rate will be frozen at £50,270. But that is it until 2026. This means that more people will find themselves paying tax at the higher rate, due to inflation-related wage growth dragging them into these higher bands. At this point families will also find themselves losing child benefit, since the threshold for beginning to pay back this benefit remains at £50,000.
The Capital Gains Tax (CGT) allowance has also been frozen at £12,300 for individuals. This means it is important to plan carefully when disposing of assets, making the most of those allowances available to you and ensuring you use tax-efficient wrappers like ISAs and pensions where possible.
Inheritance tax threshold nil rate band stuck at £325,000
More of us look likely to be dragged into the inheritance tax net, as the nil rate band - the band below which the 40 per cent tax is not payable, will remain at £325,000 per person until April 2026.
This makes inheritance tax planning even more important. With pensions remaining outside your estate for inheritance tax purposes, and allowances available annually for passing on gifts to relatives free of the tax, it makes sense to ensure you understand all the options available.
Pension Lifetime Allowance frozen at £1,073,100
The Lifetime Allowance is the amount that can be accrued in a pension plan without a lifetime allowance charge being applied when excess funds are withdrawn in retirement. The level has been increased in line with CPI inflation up to now, but will now be frozen at £1,073,100 until 2026..
A new ‘green’ savings product
Safe savings at high rates are hard to find right now, so many people are excited by the prospect of a new ‘green gilt’, with funds raised used to fund renewable energy projects and greener transport.
The bond will be issued by the Government’s National Savings & Investments, but rates are not revealed yet so we will have to wait until the summer to find out whether the gilt will help beleaguered savers to make the most of their money.
Five per cent mortgages and an extended stamp duty holiday
Experts predicted continued house price growth after Sunak announced that government-backed mortgages would mean that buyers could secure a new home with just a five per cent deposit.
Meanwhile the stamp duty holiday, which has caused both high demand for homes and blockages in the system has been extended until the end of June. Currently, no stamp duty is paid on the first £500,000 of a property purchase.
This relief will be reduced to the first £250,000 until the end of September. It will then revert to the pre-pandemic level of £125,000.
The stamp duty holiday also applies to those buying second homes and buy-to-let properties, although they must pay the extra three per cent second home tax.
Help for the self-employed and those on furlough
The furlough scheme is extended until September, initially paying 80 per cent of wages up to £2,500. The chancellor confirmed a fourth and fifth self-employed grant, which will now take into account the newly self-employed and be worth up to £15,000 in total (£2,500 for each month).
The fifth grant will be dependant on loss of income. Workers whose turnover has fallen by at least 30 per cent can still apply for a grant for up to 80 per cent of profits. Those whose income has fallen by less than that can apply for up to 30 per cent of trading profits. This is capped at £2,850.
What wasn’t announced
As with any Budget, the widely speculated changes that did not transpire are as significant as those that did. The Chancellor did not raise Capital Gains Tax rates or abolish higher rate pensions tax relief, despite some speculation.
This means it is all the more important to make the most of the reliefs available now in case these measures are brought in in future.