Budget March 2021 – Commentary

Rishi Sunak Spring Statment 2022

Following a record year of Government spending to help the country through the Coronavirus pandemic, a Budget speech from Chancellor Rishi Sunak was expected to be pretty formidable. However, rather than a focus on how the Government was going to ‘recoup its losses’, the speech seemed to focus on the continuation of support for individuals and companies to recover from the financial consequences of the coronavirus and lockdown measures.

As has been the case with previous budgets, much worry and panic seem to circulate around the financial press before the Chancellor’s speech – usually as to which aspect of our finances will be hit hardest. A good example of the sort of rumour which has not yet come to fruition, despite rearing its ugly head almost annually, is the removal of tax-free cash from pensions.

This year it was widely accepted that the country needs to recover from the effects of the pandemic, so stifling consumers’ spending power by raising income taxes would be a short-sighted way of paying down the Government’s debt. So, that left us to fear that the tax-breaks given to savers, which are currently very generous, would be an easy target – after all, if you are saving money, you are not spending it in the economy as is seemingly needed right now. For example, the rate of tax on Capital Gains, for most, is just 10% and that is only after you have fully used a very generous allowance of £12,300 per person per year. Another widely-discussed fear was the removal of higher tax relief on pension contributions – perhaps to be replaced by a flat percentage for all.

None of these extreme measures did indeed come to fruition, so the result is that spenders and savers alike seem to have been let off lightly. In addition to these, Inheritance Tax (IHT) has remained untouched. Part of the argument is that IHT is also an easy hit – after all, the Dead don’t vote. In reality, this is a subject the majority of Conservative voters, particularly in the older age brackets, are vehemently against. It is of course in the interests of the current Government to keep them onside.

What we have seen in reality is the Chancellor being a little bit cleverer than stark tax hikes. The majority of tax changes are not rises in reality but freezes. For example, in lieu of the previously planned, inflation-proofing increases to the personal allowance for income tax, capital gains allowance, and the lifetime allowance for pensions, freezes at the 2021-22 tax year level have been announced until April 2026. Whilst these won’t feel like a rise, the effects of inflation over a five-year period will leave individuals slightly worse-off in ‘real’ terms. A classic case of ‘stealth tax’ – to use slightly unsavoury tabloid terminology.

The severest tax rise has been Corporation Tax. Although frozen at the current level of 19% until 2023, businesses with profits of over £250,000 pa will then be hit with a tax rise to 25%. Profits of under £50,000 will remain at 19% and gradual increases up to 25% for profits between £50,000 and £250,000. This seems to give small businesses a huge incentive to decrease their profits to £50,000 or below – where company pension contributions could prove vital.

The above is of course just our interpretation of Mr Sunak’s announcement yesterday and the devil really is in the detail of any budget, so more intricacies are bound to leak out in the coming days and weeks. Below, we have included a short run down of what we think will affect our clients most in terms of personal and company finances:

Personal Finances

Income Tax

  • No income tax rate rises which is good news for those working and in retirement alike.
  • Personal Allowance threshold to be increased slightly to £12,570 from £12,500 and the higher rate threshold from £50,000 to £50,270 in tax year 2021-22. It was originally planned to continue to increase this with inflation but this has instead been frozen instead – remaining at £12,570 and £50,270 respectively until April 2026.
    • This is expected, in turn, to mean, that the personal allowance will be fully tapered (for earners over £100k) by £125,140 of earnings).
  • National insurance primary threshold for employees to increase to £9,568 and Upper Earnings Limit to £50,270 in 2021-22 then, like income tax, frozen at this level until 2026.
  • No changes to taxation of dividend income and the £2,000 allowance remains in place. This will continue to help those with taxable investment income.

Capital Gains

  • No increase in rates of tax rates on the realisation of capital gains.
  • Annual allowance for Capital Gains Tax to remain level at £12,300 per person. Also good news for clients with taxable investment accounts or those planning to sell assets such as investment properties.
    • That said, the intention was to increase this with inflation, much like the income tax allowances, but this has been frozen until 2026 too.


  • Lifetime Allowance (maximum allowed to be ‘crystallised’ from an individual’s total pension provisions) frozen at £1,073,100 (its current level). This was due to rise yearly with inflation but is too frozen until 2026.

Inheritance Tax

  • No increase in inheritance tax rates and no decreasing of individual’s allowances (also known as Nil Rate Bands [NRB]).
  • IHT NRB to remain at £325,000 per person and the Residence NRB (designed to give an extra allowance to protect the inheritance of the ‘family home’) at £175,000.
    • No change expected to the tapering of the RNRB for estates worth over £2m.

Investment Allowances

  • Pension allowance remaining at £40,000 per personal p.a. (under normal circumstances).
  • ISA allowance is to remain at £20,000 per personal p.a.
  • Junior ISA and Lifetime ISA Allowances to remain at £9,000 and £4,000 per personal p.a.

Income Support

  • Furlough support to be extended to the end of September 2021. Employees will continue to receive 80%, whilst employers will have to contribute 10% in July then 20% in August and September.
  • Self-employed support scheme extended until end of Sept. February to April based on 80% of three months’ average profits – cap of £7,500. From May onwards, its focus shifts to a test against turnover.


  • The current stamp duty cut, 0% on purchases up to £500,000 will be extended to 30th June 2021. Thereafter, the Nil Rate Band will be up to £250,000 until 30th Sept 2021, before returning to its ‘pre-Covid’ level of £125,000.
  • Launch of mortgage guarantee scheme from April 2021. Provides a Government guarantee to lenders to accept 95% loan-to-value mortgages up to £600,000 property purchase price. Scheme expected to run until the end of 2022.

Company Finances

Corporation Tax

  • Tax rate to remain at 19% until 2023.
  • The rate will then rise to 25% for businesses with profits over £250,000.
    • There will be a tapering from 19% up to 25% for profits between £50,000 and £250,000. This may provide a real incentive for small businesses to reduce their profits below £50,000 due to marginal rate relief, where company pension contributions could prove especially useful.


  • OBR (Office for Budget Responsibility) forecast is for inflation to remain at low levels for the foreseeable future. Prediction for 2021 is 1.5% rising gradually to 2.0% in 2025. Low inflation is likely to be less of a drag on investment performance.

by Sam Brueton, Director of HCL Bank House Financial Services Ltd

Published on 04/03/2021