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Feared tax increases put on pause in 2021 budget

Ben Taylor, associate solicitor at top 200 law firm Roythornes Solicitors, said: “In the lead up to the Budget, a number of economic commentators urged caution in respect of a tax increase – to avoid stifling the economic recovery of the UK – but with UK national debt the highest since 1963, significant tax increases were still expected.

“However, it appears that those tax increases have not materialised. The Chancellor’s statement was cautious, focusing on businesses and employment as well as further spending, with the extension of the furlough scheme in particular.

“It may be the case that we still get an increase in tax as the country begins to recover from the pandemic. However, for now the capital tax increases and feared changes have not been seen, allowing taxpayers time to plan and review.

“Some of the standout tax announcements include:

Corporation Tax will increase to 25% from April 2023 and a small profits rate will apply on profits over £250,000. This is not a huge surprise as the current rate of 19% is not considered particularly high. It will affect a number of businesses across the country, but plenty of time has been given for planning. Businesses will also be interested in the new deductions for investment. The increase in Corporation Tax will also affect those holding investments in companies, as part of wealth strategies.

Inheritance Tax (IHT) nil rate band and residence nil rate band will be frozen until April 2026. The ‘traditional nil rate band’ has not changed since 2009 and is quite arguably overdue an increase. Despite this, we did not see the level of changes to IHT many feared.

To keep to Conservative promises, an increase in Income Tax was not expected. The Income Tax Personal Allowance will rise with CPI as planned to £12,570 from April 2021 and will remain at this level until April 2026. Marginal rates will stay the same beyond April.

The annual exemption for Capital Gains Tax (CGT) will also be frozen until April 2026. We did not see a move to increase CGT rates, or an alignment with Income Tax Rates, which will be welcomed by those in the process of selling or looking to engage in estate planning.

The Stamp Duty Land Tax (SDLT) ‘holiday’ has been extended until 30 June 2021. From 1 July 2021, the Nil Rate Band will reduce to £250,000 (from the current £500,000 threshold) until 30 September 2021 before returning to £125,000 on 1 October 2021. This will no doubt comfort those in the middle of deals and help to prevent deals from collapsing as a result of a cliff edge that would have otherwise applied. Relief was also introduced for the new Freeports.

“Of course, in each case it will be necessary to review the full Budget report for the details.”