How might the budget affect your budget?
Last Tuesday was the day the Chancellor had a once-in-a-generation opportunity to make some sweeping changes to taxation. Louis XIV’s finance minister, Jean-Baptiste Colbert, quipped that the art of taxation was to extract the maximum quantity of feathers with the minimum amount of hissing. Given that it is patently obvious how much money the government has expended on covid, Rishi Sunak would have been perfectly justified in saying, Sorry folks, we’re all going to have to contribute to this, and those of you with a few quid are going to have to contribute a bit more. Had he said that on Tuesday and increased taxes a bit, I don’t think there would have been too much squawking.
For me, I think he bottled it.
Some of the headlines
- For those owners and employees of businesses that are not yet able to open up fully, furlough has been extended until September, at 80% of wages, with employers having to contribute a bit from July onwards.
- The Stamp Duty holiday has been extended, which is good news for those suffering from delays in trying to get purchases completed. And a new measure to support 95% mortgages has been introduced. On the face of it, these seem like helpful measures – and for individuals they certainly are – but the main effect of the stamp duty holiday seems to have been to drive house prices even higher.
- Income tax isn’t going up, but the personal allowance and higher rate thresholds are being frozen at April 2021 levels for five years to 2026. That means that, in real terms, more people will pay tax and at higher rates, as people’s income increases with inflation. But you won’t immediately see the effect in your net pay, or in the amount of tax you pay.
- Corporation Tax is going up to 25%, but on a banded basis, such that companies with annual profits of less than £50,000 will still be 19%, rising progressively to 25% for the most profitable companies (apparently only the top 10% of companies will be affected). Not until 2023 though.
- On the plus side, a new ‘super-deduction’ is being introduced for next tax year. Usually, the tax relief on new equipment has to be spread over a number of years, but this allows businesses to offset capital expenditure on some new equipment plus an additional amount of 30% against profits. As ever, the devil is in the detail, but it does seem like a good incentive to get companies investing.
- I’m glad to see no changes to pensions, other than the Lifetime allowance being frozen until 2025-26. Same with Inheritance Tax thresholds.
- And I am surprised that no changes were made to Capital Gains Tax, given the speculation around this last year, and the fact that it seems like an easy target. The only change seems to be that the annual allowance is again frozen for five years.
In summary: not much to see here, unless you own or manage a limited company.
But be warned – the Chancellor may well come back for a second bite. In fact, he said that now is not the time, implying that the time is still to come. I have to say that I thought now was ‘the time’. Right now, it seems to me that those who have not suffered financially through the pandemic would be willing to pay a little extra to help those who have. By this time next year, when our memories of what has been a very difficult time may have faded somewhat, chances are that the ratio of hissing to feathers will be a lot higher.
Please do get in touch if you have any observations or questions about this blog, or if you have a financial planning matter you would like some help on. One of our financial planning team will be glad to try and assist.