Tax rises shunned - for now
No change. There were rumours of a wealth tax, of capital gains tax hikes and other increases, but the 2021 Spring Budget (see Follow up ) ended up being something of an anti-climax. The government clearly wants economic recovery to be well underway before doing too much tinkering with the tax legislation. The main announcements that will affect your clients in the short term are the freezing of various allowances and bands. The following will take effect until April 2026:
- personal allowance - £12,570
- basic rate band - £37,700
- CGT annual exemption - £12,300
- IHT nil rate band - £325,000
- IHT residence nil rate band - £175,000
- pension lifetime allowance - £1,070,100.
Companies. The only major change in rates was for corporation tax, which will increase to 25% from 1 April 2023. Companies with profits below £50,000 will continue to pay 19%, and there will be a marginal rate for profits up to £250,000.
Pro advice. Whilst this might seem unimportant currently, as it is two years away, you need to factor it in when looking at potential incorporations now, as the increase in rate will affect profit extraction planning.
Loss extension. A further announcement was that losses arising in 2020/21 and 2021/22 will be able to offset trading profits (from the same trade) in the previous three tax years. There are similar provisions for companies.
Pro advice. In order to benefit from the extension, a sideways loss relief claim must be made first. Any unused loss can then be relieved using the extension, but only against profits from the same trade. If there is no general income to enable a sideways relief claim, the extension can be used directly.