The Budget is a key event when we learn key information about taxes, public spending and new legislation which can affect people’s financial planning. In this article, our financial planners at Vesta Wealth offer some reflections on this important topic below. We hope you find it helpful and invite you to contact us if you are concerned whether/how the following may affect you.
Furlough and financial support
For those on furlough who had been worried about the scheme ending in March, the Budget will have been a big relief. The Job Retention Scheme has been extended until September, with the government paying up to 80% of wages (capped at £2,500 per month). Employers will be required to cover 10% from July and 20% from August.
Sole traders and freelancers also have some good news as the Self-Employment Income Support Scheme (SEISS) has been extended to the end of summer 2021, with two grants available (4th and 5th). The 4th will be capped at £7,500 and covers 80% of 3 months’ average trading profits and is also open to people who became self-employed in tax year 2019-20. There are certain criteria which must be met to be eligible, including trading profits which did not go over £50,000.
Tax freezes
The Conservatives pledged in their 2019 manifesto that they would not raise VAT, income tax or national insurance. The March 2021 budget has not violated this promise, although many have pointed out a stealth tax, as after the next tax year (2021-22) the tax-free personal allowance will be frozen at £12,570 until 2026. The higher rate will also be frozen during this period at £50,270.
Whilst this may sound insignificant, the Office for Budget Responsibility (OBR) estimates that the measures could push an extra 1.3m people into paying income tax by 2026. This is due to many people receiving a pay rise, even if just follows inflation, over this period. Some people currently on the basic rate may find themselves paying the higher rate, perhaps without even realising. Make sure you speak with your Financial Planner if you believe you may be affected, as there may be some steps you can take, such as maximising the use of reliefs available from pensions.
Pensions and inheritance tax (IHT)
For pensions, the lifetime allowance will be frozen at £1,073,100 for a further five years (to April 2026).
Assuming that the CPI inflation returns to a more reasonable 2.5% during these years, the lifetime allowance would have been expected to rise to £1.2m in 2025-26. In simple terms, this means that more people could see themselves subjected to a punitive charge without careful financial planning.
The IHT tax-free threshold is also being frozen at £325,000 over the same period, meaning estate plans may need to be updated to ensure that any potential increase to an IHT bill is properly covered.
Housing
In the run up to the March 2021 Budget, many were concerned about the effect that the end of the stamp duty holiday may have had on the residential property market. With this now extended, this allows some breathing space for the current logjam to resolve.
The stamp duty threshold will remain at its current level of £500,000 until 30th June, reducing to £250,000 until 30th September, before returning to the normal level of £125,000 from 1st October. This stepped reduction will go some way to addressing concerns about the effects of a cliff edge withdrawal of the stamp duty holiday.
If you are considering a move at some stage in 2021 then think about acting sooner rather than later (subject to advice from your Financial Planner). This will give your deal more time to complete, as opposed to leaving things until nearer October.
First-time buyers may also be intrigued to hear that the government will be underwriting 95% mortgages, which is likely to encourage more products from lenders to enter the marketplace in the coming months. This, of course, could allow you to get onto the housing ladder with a smaller deposit. However, bear in mind that this will likely result in a larger interest payment to the bank in the long term and could lead to a high monthly repayment putting a large strain on your finances. Again, consider seeking professional advice to ensure your property plans and ambitions are effectively integrated into your wider financial plan.
Conclusion and invitation
There are many other important aspects of the March 2021 Budget which we have been unable to cover here. If you would like a copy of our more detailed Budget Summary, please download it here.
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.