The Chancellor Rishi Sunak unveiled the contents of his red Budget box last week, and although many announcements had been leaked in advance, there were still a few surprises in store.
Here’s our round up of some of the main Budget announcements and what they could mean for your finances.
There was plenty of speculation prior to the Budget that the Chancellor might tinker with the current system of generous pension tax relief on contributions, but thankfully this was left untouched.
However, he did freeze the Lifetime Allowance, which limits the amount you can draw from your pension without paying extra tax. This Allowance currently stands at £1,073,100 and will remain at this level until 2025/26. Emma Watson, head of financial planning at Rathbone Investment Management: “Essentially a ‘stealth tax’ move to freeze the lifetime allowance runs the risk of driving disappointed savers away from pensions in order to avoid hefty tax charges.”
There were concerns that the Budget could see the removal of the ‘triple lock’ guarantee, which means that the state pension must rise by either September’s price inflation, average earnings growth or 2.5%, whichever is higher, but this remains in place, at least for the time being. As a result, the state pension will rise by 2.5% in April, from £175.20 a week to £179.60 a week.
One of the biggest pension bombshells on Budget day was that the Department for Work and Pensions revealed £3bn would be earmarked to address state pension underpayments to thousands of married women, due to DWP errors in working out their entitlement.
Although there were no direct increases in personal taxes, the government froze income tax thresholds until 2026, which means that as people’s wages increase, many will be pushed into a higher tax band.
Chris Halliwell, wealth planner at Sanlam Wealth Planning, said: “Be careful of the hidden tax of inflation. With average levels of savings increasing significantly over lockdown, and high demand for services outside the home, short term inflation is likely to pick up over the coming years. If it is higher than 2%, which I suspect it will be over the near term, the fact that personal tax allowances won’t increase will mean a significant reduction in take-home pay over the short to medium term.”
Help for homebuyers
The Chancellor unveiled a new mortgage guarantee scheme which will begin in April and is designed to help both first-time buyers and existing homebuyers with small deposits looking to move up the property ladder. The scheme will enable buyers to purchase a property costing up to £600,000 with just a 5% deposit. Lenders who offer them a mortgage will be provided with a government guarantee that it will recoup a proportion of any losses if the buyer defaults on their mortgage.
The stamp duty holiday, which waives stamp duty for all properties valued up to £500,000, has been extended until the end of June. After that, no stamp duty will apply on property purchases up to £250,000 until the end of September.
Inheritance tax and capital gains tax (CGT)
The capital gains tax annual exemption is to be frozen at its current level of £12,300 for individuals until 2025/26, and the inheritance tax allowance will also remain unchanged until this date. James Jones-Tinsley, specialist at Barnett Waddingham, said: “The inheritance tax nil-rate band will remain at £325,000 until 5 April 2026, which potentially means that an increasing number of people may be subject to 40% tax on their estate value in excess of this figure.”