Spring Budget 2021: Key Changes for FSL Clients

Here is a summary of items announced in the 2021 Spring Budget that may be relevant to FSL clients. For more detail, please refer to the GOV.UK website and the Overview of Tax Legislation and Rates (OOTLAR) published by HM Treasury and HMRC that provides a comprehensive summary of all the tax-related changes.

All the changes announced will form part of the upcoming Finance Bill 2021.

Personal Tax – Income Tax Threshold: the government has proposed legislation that will see the income tax personal allowance and higher rate threshold adjusted in line with Consumer Price Index (CPI), as planned during April 2021. This will see the basic rate of person allowance rise to £12,570 and the higher tax threshold rise to £50,270. It will be maintained at this level until the financial year beginning on 1^st April 2026. (Ref: OOTLAR, para 1.1)

Personal Tax – Inheritance Tax Threshold: as revealed during the budget, the government has outlined legislation that will see inheritance tax thresholds remain at existing levels until the financial year beginning on 1^st April 2026. As a result, qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an Inheritance Tax liability. (Ref: OOTLAR, para 1.6)

Capital Gains Tax – Annual Exempt Amount: the government will present legislation that maintains the current capital gains tax annual exempt amount at £12,300 for individuals, personal representatives, and some categories of trusts. This is proposed to remain unchanging until 2026. (Ref: OOTLAR, para 1.19)

Corporation Tax – Main Rate: the government will introduce an increase to corporation tax to 25%, which will take place for the financial year beginning on 1^st April 2023. This will only affect organizations earning profits in excess of £250,000. Furthermore, Rishi Sunak announced that he will create a “Small Profits Rate” of 19% for companies with profits of £50,000 or less.  However, firms making profits between £50,000 and £250,000 will pay the main rate of corporation tax, which will be reduced by marginal relief. It is not clear what this marginal rate of relief will be. (Ref: OOTLAR, para 1.20)

 Corporation Tax – Diverted Profits Tax: as stated during the budget, the government will increase the rate of Diverted Profits Tax from 25% to 31%. This proposed change will take place for the financial year beginning on 1^st April 2023. (Ref: OOTLAR, para 1.21)

Capital Allowance – Annual Investment Allowance: as announced on 12^th November 2020, the government will present legislation to extend the temporary £1,000,000 limit for the Annual Investment Allowance by one year. The proposed change will have effect from 1^st January 2021 to 31^st December 2021.  (Ref: OOTLAR, para 1.34)

The FSL Business Analysis team is actively analysing any potential changes today’s announcements will have on our products moving forward. We will also keep you updated with any changes following the government’s tax policy consultation day, set for March 23, 2021. It is expected that capital gains tax will be amongst the reviews announced on this day.