ICAEW's Tax Faculty's provides a summary of the announcements on personal tax in the Spring Budget 2021, including capital gains tax, income tax, inheritance tax, pensions, residence and domicile, savings and investments, and trusts.
The rates of income tax, capital gains tax and inheritance tax remain unchanged.
Personal allowances and thresholds
As previously announced at the spending review on 25 November 2020, the tax-free personal allowance is increased by CPI inflation to £12,570 for 2021/22. The government also confirmed at the spending review that the basic rate band will increase by CPI inflation to at £37,700 for 2021/22.
In summary:
Year |
Standard personal allowance |
Basic rate band |
Higher rate threshold |
Additional rate threshold |
|---|---|---|---|---|
2021/22 |
£12,570* |
£37,700 |
£50,270** |
£150,000 |
2020/21 |
£12,500* | £37,500 | £50,000** | £150,000 |
* Personal allowance is reduced by £1 for every £2 that adjusted net income (ANI) is above £100,000 (so personal allowance is zero if ANI is £125,140 or above).
** A lower higher rate threshold applies to earned income of Scottish taxpayers.
Marriage allowance
The transferrable marriage allowance will increase to £1,260 for 2021/22 (2020/21 £1,250).
Dividend allowance
The dividend allowance is unchanged at £2,000.
Savings allowance
The personal savings allowance is unchanged at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £nil for additional rate taxpayers.
Starting rate for savings tax band
The starting rate for savings tax band is unchanged at £5,000.
Capital gains tax
The annual exempt amount for capital gains tax (CGT) is unchanged at £12,300 and will remain at this level until 5 April 2026.
Inheritance tax
The inheritance tax nil rate band (NRB) is unchanged at £325,000.
The IHT residence NRB of £175,000 is also unchanged. The tapering of the residence NRB will continue for estates worth more than £2m.
The bands will remain unchanged until 5 April 2026.
Pensions
The lifetime allowance is unchanged at £1,073,100 and will remain at this level until 5 April 2026.
The annual allowance limit is unchanged at £40,000.
Collective money purchase pension schemes (also known as collective defined contribution schemes) were introduced by the Pension Schemes Act 2021. Legislation will be introduced in FB 2021 to ensure that they can operate as registered pension schemes for tax purposes.
Individual Savings Account (ISA), Junior ISA and Child Trust Fund annual subscription limits
These limits are unchanged for 2021/22:
- ISA annual subscription limit - £20,000;
- Junior ISAs annual subscription limit - £9,000; and
- Child Trust Funds annual subscription limit for - £9,000.
Social Investment Tax Relief (SITR)
Support for investment in social enterprises has been extended for a further two years to April 2023. SITR provides income tax and capital gains tax hold-over relief to investors in qualifying social enterprises.
Financial support payments made to potential victims of modern slavery and human trafficking
Financial support payments have been made to victims of modern slavery and human trafficking since 1 April 2009. Budget 2021 announced that FB 2021 will include a measure to take these payments, which would otherwise be taxable annual payments, out of the charge to income tax. The measure will apply retrospectively to all payments made since the scheme started.
Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More on Budget 2021
Read the rest of the Tax Faculty's summary of the tax related announcements in the Budget on 3 March 2021.
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