The personal allowance – the amount that you can earn before you start paying Income Tax – has increased to £12,570. Similarly, the higher rate threshold – the point at which you will start to pay 40% Income Tax – has risen slightly to £37,700 of taxable income or £50,270 of gross income in 2021/22. Both the personal allowance and the higher rate threshold have been frozen for the next five years. The additional rate tax threshold of £150,000 is unchanged. There are some changes to the tax bands for Scottish taxpayers, which can be found on HMRC’s website.Dividend and savings income
Through the Personal Savings Allowance, basic rate taxpayers can continue to earn £1,000 of interest on savings before paying tax in 2021/22. Those paying tax at the higher rate see their allowance remain at £500. The Dividend Allowance has also remained unchanged at £2,000.
Both allowances have been frozen since 2018/19, limiting the scope to earn tax-free dividend and savings income, and underlining the importance of making maximum possible use of your ISA allowance.Personal pensions
Ahead of the Budget, there had been considerable speculation over possible changes to pensions tax relief, but nothing was forthcoming; the government perhaps deciding that, given the impact of the pandemic, now was not the time.
Most people can still get tax relief on pension contributions worth up to £40,000 per tax year (or 100% of relevant earnings, if less).
The annual allowance continues to taper down for individuals who have an adjusted income above £240,000 and threshold income in excess of £200,000. Those with adjusted income under £240,000 will not be subject to the taper and will have a £40,000 annual allowance (unless relevant earnings are below £40,000). The minimum that the annual allowance can taper down is £4,000.
The lifetime allowance – the most you are allowed in your pension pot before triggering an extra tax charge – remains the same at £1,073,100 for 2021/22.Capital Gains Tax
The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026. Effective and repeated use of your CGT annual exempt amount is a great way to transfer assets into ISAs or pensions to provide a shelter from any future tax liability on income or gains.ISAs
The ISA subscription allowance remains at £20,000 for the 2021/22 tax year. This includes Stocks & Shares and Cash ISAs. What also remains unchanged is the prospects for Cash ISA savers given the continued low interest rates available.
The current volatility in markets can be off-putting but investing in stocks and shares is likely to remain the best long-term option for ISA savers.Junior ISAs
The Junior ISA annual subscription allowance also remains unchanged at £9,000. Alongside children's pensions, Junior ISAs present a great opportunity to help give children a financial head start. Yet according to the latest available figures, nearly three out of four accounts of Junior ISAs are held in cash¹: something parents should perhaps reconsider given the interest rate outlook.Inheritance Tax
The Inheritance Tax nil-rate band for 2021/22 remains at £325,000 and will remain frozen until 2026. The residence nil-rate band stays at £175,000.
The government continued to put on hold plans to simplify the IHT regime, but it remains on the agenda. So now may be a good time to review making lifetime gifts before the tax rules are potentially ‘simplified’ into something less generous.Corporation tax
The main rate of corporation tax will remain at 19% for the year beginning 1 April 2021 and will rise to 25% from April 2023 for businesses with profits of £250,000 and over. The rate for businesses with profits of £50,000 or less will remain at 19% and there will be a marginal taper for profits between £50,000 and £250,000.
If you would like to find out more about the new tax year allowances, please get in touch.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.1 HMRC, Individual Savings Account (ISA) Statistics, June 2020
As a Chartered Financial Planner and Fellow of the CII, I have satisfied rigorous criteria relating to professional qualifications and ethical good practice.
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