On 3 March 2021, the Chancellor, Rishi Sunak, delivered his second budget. With a national lockdown still in force, the focus of the budget was predominantly aimed on providing expenditure and support for individuals and businesses impacted by the ongoing pandemic. Whilst the Chancellor was clear to explain it was not the time to address the record levels of borrowing, some initial measures were announced.
The inheritance tax nil rate band (NRB) and residence nil rate band (RNRB) thresholds are to be frozen until 6 April 2026. They will remain at their current levels of £325,000 and £175,000 respectively. The taper threshold which applies to the RNRB where an estate exceeds £2 million will also remain. Where an estate exceeds a value of £2 million, the availability of the RNRB is reduced by £1 for every £2 over the £2 million threshold.
These measures are expected to increase the government’s revenue in the wake of its expenditure during the pandemic. The government has estimated that these freezes are likely to result in around 12,700 additional estates becoming subject to inheritance tax.
On 23 March 2021, the government also published a policy paper outlining a number of developments and tax administrative measures which are to be introduced. This included simplifying the reporting requirements so that, from 1 January 2022, over 90% of non-taxpaying estates will no longer have to complete inheritance tax forms for deaths when probate is required. A comprehensive reform of trust taxation was also stated not to be expected but to be kept under review.
The income tax personal allowance threshold is to increase to £12,750 in April 2021 as previously announced. This threshold will then be frozen until 6 April 2026. The basic rate limit threshold will increase to £37,700 and the higher rate threshold similarly to £50,270. These levels will remain in place for a period of four tax years as is the case with the personal allowance threshold above.
Further, tougher penalties will be introduced in April 2023 as to the late payment of income tax. Full payment will be required within 15 days of the due date and a 2% penalty will be applied to those payments which are between 16 and 30 days late. This penalty increases to 4% after 30 days and daily penalties also begin to accrue.
Capital Gains Tax
The capital gains tax annual exempt amount will remain at its current level of £12,300 for individuals and personal representatives until 6 April 2026. For trustees, this allowance will remain at £6,150.
For more information on this article, please contact Kerri Woodrow or Katherine Hague.