Budget 2021: Predicted measures from Chancellor Rishi Sunak

The Spring Budget includes a raft of economic measures designed to boost the UK economy in the wake of the coronavirus crisis. The Chancellor of the Exchequer has warned Britons taxation will need to rise to pay for the cost of the pandemic, which in November was estimated by the Office for Budget Responsibility to be £394bn for the current financial year. Now the Budget has been announced, but what changes has Rishi Sunak made to taxes?

Income Tax

Income Tax is a tax you pay on your income.

The Chancellor froze income tax thresholds in his Budget today.

The Conservatives promised not to raise rates of income tax in the party’s 2019 election manifesto.

This tactic would not technically mean a rise in taxation for workers, but would still see employees paying more tax as their salaries rise.

The personal allowance of £12,500 was due to rise in the new tax year, but Mr Sunak revealed this threshold will be frozen.

This freezing could raise an additional £6bn.

The tax-free and higher tax rates will be increased next year to £12,570 and £50,270 respectively, where they will remain until 2026.

Mr Sunak said: “Our response to coronavirus has been fair, with the poorest households benefiting the most from our interventions. 

“And our approach to fixing the public finances will be fair too, asking more of those people and businesses who can afford to pay and protecting those who cannot. 

“So this government is not going to raise the rates of income tax, national insurance, or VAT.”

Economic commentators call this move a “stealth tax” suggesting a freeze is a clever way to raise extra funding while remaining largely under the radar.

The rates of National Insurance will also be frozen.

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Tax changes budget 2021: What does the Budget today mean for YOUR taxes? (Image: GETTY)

Tax changes budget 2021: Cabinet

Tax changes budget 2021: Income Tax is a tax you pay on your income (Image: GETTY)

Capital Gains Tax (CGT)

Capital Gains Tax is a tax on the profit made when you sell or dispose of an asset which has increased in value.

Mr Sunak commissioned a review of Capital Gains Tax last July in a bid to plug the economic hole created by the coronavirus crisis.

The review suggested increasing rates of CGT and cutting CGT protections due on investment profits could effectively raise much-needed funds.

Currently, CGT raises less than £10bn and the review suggested raising rates in line with income taxes.

This move would raise £14bn a year for the Treasury.

Mr Sunak today announced the CGT tax rates would be frozen until 2026.

Pensions Tax relief

Mr Sunak announced a new “stealth tax” for wealthy pensioners today.

The Chancellor froze the lifetime allowance, which is the amount people can build up in their pension pot before incurring tax charges.

The current rate is £1,073,100 and a freeze means anyone pushed above this threshold could face a 25 percent levy.

The charge rises to 55 percent if they choose to draw down a lump sum.

The freeze would remain in effect until 2026, likely affecting around 10,000 pensioners.

If the amount rose in line with inflation it would go up by £88,900 by 2024.

However, freezing the allowance means the additional pension savings will face the 25 percent levy which is equivalent to £22,225.

Tax changes budget 2021: Mr Sunak

Tax changes budget 2021: The UK has the lowest Corporation Tax rate of any G7 country (Image: GETTY)

Corporation Tax (CT)

Corporation Tax is a tax charged to all limited companies which is payable against the profits a company makes.

Currently, the UK has the lowest CT rate out of all the G7 countries.

Plans to increase Corporation Tax from 19 percent to 25 percent.

This plan will reverse cuts made to the tax under former chancellor George Osbourne, which saw rates drop from 28 percent to 19 percent.

In 2023, the Chancellor said the rate would rise to 25 percent. 

The higher rate will not take effect until April 2023, with only 10 percent of companies paying this rate according to Mr Sunak.

The Chancellor said: “This new higher rate won’t take effect until April 2023, well after the point when the OBR expect the economy to have recovered.

“And even then, because corporation tax is only charged on profits, any struggling businesses will, by definition, be unaffected.

“Second, I’m protecting small businesses with profits of £50,000 or less, by creating a Small Profits Rate, maintained at the current rate of 19 percent. 

“This means around 70 percent of companies – 1.4 million businesses – will be completely unaffected.

“And third, we will introduce a taper above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25 percent rate.”

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Tax changes budget 2021: Mr Sunak

Tax changes budget 2021: Council Tax is charged to all households in the UK (Image: GETTY)

Council Tax and Stamp Duty

Council Tax is an annual fee paid by all households in the UK to local councils to fund local services.

Stamp Duty is a land tax payment which is charged to those buying property or land which costs more than a set amount.

Mr Sunak extended the Stamp Duty holiday for three months on March 3, meaning it will last until the end of June for properties worth up to £500,000.

After this period ends, it will be scaled back to cover properties worth up to £250,000.

The Government will not raise funding in this way, but will instead raise money from other sectors of the property such as through Corporation Tax.

Inheritance Tax (IHT)

Inheritance Tax is a tax applied to an estate, including the property, money and possessions, of someone who has died.

IHT currently raises around £5.4bn in taxation each year for the Treasury.

Tax changes budget 2021: Tax

Tax changes budget 2021: A VAT cut was introduced last year to leisure and hospitality businesses (Image: GETTY)

VAT and business rates

Value-Added Tax (VAT) is a general, broadly based consumption tax assessed on the value added to goods and services.

The Conservatives pledged not to raise VAT in its 2019 manifesto, but the promise did not include the level at which people start paying tax.

The Treasury cut the VAT customers pay in restaurants, hotels and other leisure attractions from 20 percent to five percent to help these hard-hit businesses.

This cut was due to end until March 31, but today the Chancellor extended this cut.

Firms are not required to pass along this cut to consumers, but if it is done, the Government estimates households could save an average of £160 a year.

The Chancellor confirmed the business rates holiday extension will continue.

The business rates holiday will be extended until the end of June with a two-thirds discount for the remainder of the tax year.

Rishi Sunak says this will mean a £6bn tax cut for businesses.

Response to the tax changes has been mixed, with many calling the decision to freeze personal tax rates as a stealth tax.

ITV’s Robert Peston tweeted: “Pretty much all tax thresholds – for income tax, inheritance tax, pensions allowance, CGT, VAT and so on – will be frozen from next year to 2026. These are disguised tax rises for pretty much all of us, though hit higher earners most”.

Another person tweeted: “#Budget2021 Initial thoughts. Corp tax up as expected. £100k threshold more suitable for small comps. Furlough and rates relief extended as expected. Are income tax thresholds frozen as well as rates? Stealth tax if income grows? Did I hear 130{540ccc4681f92a8237c705b0cdebbb9da373ec200da159e6cc1fd9f393be00be} capital allowances?”

One person wrote: “Budget 2021: freezing personal tax thresholds is a stealth tax – it’s a benefit deferred, not a penalty imposed, even if Sunak says he is being very open about this.”