There were no dramatic announcements in the Budget on personal tax, capital taxes or pensions. But Chancellors can create considerable change with low-key tactics, and the Budget tax freeze on various rates and allowances until 2026 will still affect many people.
Income Tax personal allowances
First, some context… The UK-wide Income Tax personal allowance increased to £12,570 from 6 April 2021. The basic rate band has also gone up to £37,700 whilst the higher rate threshold – the level of income where you start paying higher rate tax – also increased to £50,270 (if you have a full personal allowance). These rates and bands apply in England, Wales and Northern Ireland.
After the current tax year, the personal allowance and higher rate threshold are not set to change again until 5 April 2026.
As a result, if incomes go up, more people will be brought within the tax net. Some basic and higher rate taxpayers will also be pushed into the higher and additional rate bands.
In fact, according to government figures, 1.3 million people should come into income tax by 2025/26 and one million will become higher rate taxpayers. From the 2026/27 tax year, starting 6 April 2026, the personal allowance and basic rate limit are due to be indexed with the Consumer Price Index.
Scotland: income Tax rates and bands for non-savings and non-dividend income for Scottish taxpayers are different from the rest of the UK. The freeze to the personal allowance does affect Scotland, but the freeze to the UK higher rate threshold will only impact those with savings and dividend income. Find out more here
Big change postponed?
There has been much talk of a major tax overhaul, with Inheritance Tax (IHT), Capital Gains Tax, and Pensions all in contention for a makeover. It didn’t happen on Budget day. Nor did it happen on the UK’s first ‘Tax Day’; when a broad range of tax consultations were published.
What Tax Day did bring about, however, was a commitment to reduce red tape for IHT. So from 1 January 2022, over 90% of non-taxpaying estates will not have to complete IHT forms for deaths when probate or confirmation is required.
Change is still likely in the future though as the government looks at the picture beyond the COVID-19 crisis. It may have been paused until 2026 when the big freeze ends but we shall have to wait and see. Until then, please do speak to your RfM advisor if you need any advice on Income Tax, Inheritance Tax or Capital Gains Tax. Get in touch via our offices page or use our online enquiry form.