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The long-awaited March 2021 Budget has now been revealed, with its details still being pored over by media pundits. As financial planners here in Padiham, Burnley, Lancashire, our team at Elmfield are keen to communicate how the new budget may affect your wealth and finances in the coming months and years. Below, we outline some of the highlights for your attention. We hope you find this content useful. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
The budget & the economy
Some have argued that the March Budget contains little/no spending cuts. Yet this is not true, since only the budgets of the NHS, schools and the Ministry of Defence have been ring-fenced. In November 2020, £10bn per year was cut from departmental budgets from 2021 and this new budget squeezes out another £4bn per year on top of that. This could mean a tougher year for the likes of prisons and local government.
Fortunately, there is good news in that the UK economy is expected to grow by 4% in 2021 – with things “back to normal” by summer of next year. This, hopefully, means a more open job market for those on furlough – or the 700,000+ people who lost their jobs in 2020. Furlough has also been extended until September 2021, with the government covering up to 80% of wages. This is likely welcome news for many who have been wondering how they will continue paying their bills leading up to the March Budget.
No personal tax rises – or are there?
The Conservatives swept to election victory in 2019 with a manifesto promise to not raise VAT, income tax or national insurance. This has technically been adhered to in the March Budget. Yet there are some hidden details “under the hood” which, for many, could equate to a higher tax bill in the years leading to 2026.
First of all, the tax-free personal allowance will be frozen for three years at £12,570 from 2022. Over the same period, the Higher Rate of income tax will also freeze at £50,270. Given that average wages will rise somewhat during this time (also inflation), this is likely to increase the tax burden on most workers – possibly even pushing some into a higher tax band. Since most people do not tend to notice this dynamic over time, it has been dubbed a “stealth tax”. A Basic Rate taxpayer can now expect to pay £526 more by 2025-26. For a Higher Rate earner, £2,672.
Implications for businesses
From the Chancellor’s announcement, it appears clear that the government expects businesses to pull the UK towards economic recovery. By 2023, corporation tax will rise to 25% – quite high in historical terms, albeit lower than the G7 average of 32.3%. Most small, local businesses will likely continue on the current 19% rate, however, since the new rate only applies once profits exceed £50,000. Also, many of the businesses hardest hit by the pandemic – gyms, salons, hospitality etc. – will be able to access a £18,000 payment to assist with re-opening costs.
All company business owners, nonetheless, will need to factor changes to furlough into their business financial plan. Whilst the UK government will cover 80% of furloughed worker wages until June, from July employers will need to pay 10% – rising to 20% by August. It may be wise to consult a financial planner in the time approaching these changes, to help ensure that your business is prepared financially.
Alcohol, fuel & other areas
With the UK government promoting a green agenda leading up to the budget, many expected a rise in fuel duty. This has not occurred. This and also alcohol duty have been frozen for a year. The former will ease some financial strain on car commuters as (hopefully) the economy opens up again leading up to the summer, bringing people back into their offices.
The pension lifetime allowance and inheritance tax (IHT) threshold have both stayed the same. Yet this could lead to individuals exceeding their allowances in the coming years – without some careful financial planning. For instance, assuming you used your entire allowance for the former (and that this would have risen in line with inflation at 2%), this could result in an extra £35,000 in tax by 2026. If you are concerned that these changes may affect your pension planning and estate planning, please get in touch with us.
There are many aspects of the March 2021 Budget which are pertinent to a financial plan, and we have covered just some of the highlights here. For more information, you can refer to our 2021 Budget Summary PDF here at Elmfield. Alternatively, you can reach out to us for more specific information and advice regarding your own financial goals and circumstances.
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938