In the Spring Budget in March 2021, Chancellor Rishi Sunak announced that various allowances would remain at their 2021/22 levels until April 2026.
Increasing from £12,500 to £12,570 for 2021/22, the personal allowance has had an inflationary increase. This will be the last of the increases for several years due to the freeze on tax allowances until 2026.
As incomes rise with inflation, those who don’t pay tax at the moment may start to pay tax once their income rises above the £12,570 threshold.
INCOME TAX RATES AND BANDS
For basic rate taxpayers, the band has increased to £37,700. Those who receive their personal allowance of £12,570 will start paying higher rate tax once they exceed earnings of £50,270.
Like the personal tax allowance, this figure will remain the same until 2026.
Both basic rate and higher rate thresholds will remain the same until April 2026. As incomes rise in line with inflation, more people will pay tax at higher and additional rates.
Those who have taxable income of £150,000 and above will pay additional rate tax of 45%.
CAPITAL GAINS TAX ANNUAL EXEMPT AMOUNT
There has been no change to the Capital Gains Tax annual exempt amount. This remains at £12,300 for 2021/22 and will remain the same until April 2026.
There are no changes currently expected, but the Government have made no secret that a review and potential changes are coming for Capital Gains Tax in general.
NATIONAL INSURANCE BANDS
There have been some changes to National Insurance thresholds. Both Class 1 and the Upper Profits Limit for Class 4 have now been brought into line with the rate at which higher rate tax becomes payable.
The thresholds are now set at £50,270.
Remaining unchanged until April 2026, the Class 1 threshold will be equivalent to £967 per week or £4,189 per month.
Inheritance Tax has been topical for some years. Since 2008, the nil rate band has been frozen at £325,000 and this remains unchanged through to 2026. Freezing the threshold brings more estates inside the scope of Inheritance Tax.
The residence nil rate band remains at the current level of £175,000 for 2021/22. This too will remain the same until 2026.
Where the value of the estate exceeds £2 million or above, the residence nil rate band is reduced by £1 for every £2 of value over £2 million.
PENSION LIFETIME ALLOWANCE
The pension lifetime allowance places a limit on the value of tax relief that you can have when paying into your pension.
When a person has exceeded the pension lifetime allowance, they pay tax in the form of a 25% tax charge if the money is taken as a pension. If they take the excess as a lump sum, they will be subjected to a 55% tax charge.
From now until April 2026, the limit for the lifetime allowance remains at £1,073,100.
This will affect anybody with pension savings at this limit or close to this limit, making further pension contributions subject to tax relief during 2021 and onwards limited.
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