UK budget 2021: what are the changes?
The Chancellor delivered his budget speech yesterday against the backdrop of a declining economy due to the pandemic, Brexit and the need to get the country through to the end of the lockdown period. This was set against the need to produce growth by kickstarting the economy, and the need to reduce the national debt. A balancing act was therefore required and to a large extent was delivered. From an expatriate point of view there was nothing specific in the speech and from a personal tax standpoint only minor tinkering with the system and allowances, although this has created the highest tax burden since the 1960’s.
Income and Capital Gains
In terms of income and capital gains tax the rates and allowances were fixed for a number of years. This means that although rates will not go up, the value of the allowances will erode over time. This will bring more people within the scope of the tax and means your tax bills go up if your pay crosses the threshold, even if your rise is only due to inflation.
LTA and Inheritance Tax
The two main fixed thresholds that should concern our clients are, firstly the pension lifetime limit has not been changed. It was expected to decrease so, this in effect is a good result. However, £1.07 million pension savings over a lifetime is not a great deal. Expatriate clients may well therefore look to other offshore pensions arrangements to counteract this restriction. Our advisors would be happy to discuss this with you.
Secondly, the Inheritance tax nil rate band has again been frozen and still stands at £325,000 as it has since 2009. Therefore, even fairly modest homes are now caught in the net, and with inflation more and more people will be included each year. The plus point is that with proper and timely planning Inheritance tax can be mitigated or avoided altogether. It is worth just pointing out here that Inheritance tax is based on your domicile not your residency. So, even if you have been out of the UK for many years you are more than likely still within reach of HMRC for Inheritance tax.
The increase in rates was saved for the corporate sector, although smaller companies will not see a lot of change. The city has reacted with caution to the budget with the market raising only a small amount that afternoon. Sterling looks set to raise on the news of infrastructure spending and the introduction of freeports, in an attempt to make the UK attractive to offshore investment.
In conclusion it was a good budget, going a long way to meet the needs and wants of the country. It did make clear though that the COVID bill needs to be paid and that will be down to all of us to pay in the long term.
Mark J Routen CTA