What does the Budget mean for your clients?
Intended for Professional Advisers only
From a personal tax perspective, there were few surprises in Chancellor Rishi Sunak’s 2021 Budget, revealed on 3 March 2021, with the measures announced signalling the clear intention to grow our way to recovery. Rather than introducing changes, the Chancellor froze income tax, capital gains tax, inheritance tax and pension lifetime allowances at the 2021/22 levels. Here are three ways the changes could impact you clients:
Client reviews to prepare for freezes
For some clients, the impact of these freezes could be significant. For example, if the pension lifetime allowance were not frozen, we could expect it to rise to £1,214,144 by 2026 (assuming an increase of 2.5% annually). The decision to lock it at £1,073,100 – a difference of £141,044 – could potentially see some savers face a tax charge of more than £75,000 on excess funds. Clearly, this demands a review of these clients’ current arrangements.
Client conversations around capital gains
Following reviews of the capital gains tax regime last year, many were expecting significant changes to be introduced in this Budget, but these did not appear. Conversations you may have been having with clients regarding realising gains can therefore be put aside for now.
While it was pleasing from a planning perspective to see no significant change to capital gains tax, inheritance tax, or income tax, we suspect there may be more to come in future.
Planning opportunities for business leaders
The expected increase in corporation tax to 25% was announced but put off until 2023. Once introduced, a taper will apply, meaning that the new top rate will only be payable by companies with profits over £250,000. Companies with profits of £50,000 or less will see no increase.
Taken with a tax deduction of up to 130% against qualifying investments, this gives you a welcome opportunity to plan tax-efficiently for clients who are entrepreneurs and business leaders.