Seven things you need to know from the Budget

04 March 2021

7 minute read

A year on from the pandemic outbreak we give you the lowdown on how the Budget will impact your income, savings and investments.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

What you’ll learn:

  • What the Budget means for your tax bills
  • How the new measures will impact your savings and investments
  • Why planning ahead and using allowances is crucial.

The last 12 months have been a rollercoaster to say the least for all families, businesses and for global economies.

On Wednesday Chancellor Rishi Sunak delivered a Budget aimed at recovery and supporting households through the remainder of the coronavirus pandemic.

He outlined that the UK economy shrank by 10% in 2020, but forecasts suggest a rebound in 2021, with projected annual growth of 4% this year.

The UK markets rose sharply on Budget day. The FTSE 100 index of leading shares was up by about 2% – or more than 100 points – in morning trading and closed 0.93% up.

There were wide-ranging measures announced, with many that impact our personal finances.

Here’s what you need to know from the Budget 2021:

1. Tax thresholds frozen

Personal allowance thresholds for income tax will be frozen. They will be raised in line with September’s inflation rate of 0.5% next year (April 2022) to £12,570 for basic rate tax-payers, and £50,270 for higher rate tax-payers, before staying at that rate until 2026.

The change will hit take-home pay over the next five years, although no one’s earnings will actually go down.

The Capital Gains Tax threshold at £12,300 has been frozen, while Inheritance Tax thresholds will also remain at current levels.

2. New 5% mortgages

The Government is to guarantee mortgages for lenders where borrowers can only raise a 5% deposit.

From next month lenders – including Barclays – will offer mortgages worth 95% of the purchase price on properties worth up to £600,000.

The loans will be available to existing homeowners as well as first-time buyers.

3. Stamp duty

The Stamp Duty holiday has been extended by three months to help those that could miss the previous deadline (31 March) as a result of the latest lockdown.

The new deadline will be now be 30 June.

The Treasury announced last year that it would temporarily raise the stamp duty threshold from £125,000 to £500,000 for property sales in England and Northern Ireland.

Once the new June deadline has passed there will be an interim nil rate threshold for Stamp Duty of £250,000 for three months. The standard threshold of £125,000 will resume on 1 October.

The average stamp duty saving in England is £5,802 (correct as at 3 March 2021, according to Rightmove).

4. Pensions

The pensions lifetime allowance – the total amount you can build up in pension benefits over your lifetime while still enjoying the full tax benefits – has been frozen at its current limit of £1,073,000.

This freeze acts as an effective tax on pension withdrawals and so will have consequences for those approaching that limit. High-earning NHS doctors and consultants who benefit from generous final salary pensions, for example, will be among those hit by this measure.

5. Green Savings Bond to be launched

A new savings bond for green projects is to be made available for ordinary investors via National Savings & Investments. Details of the bond, which will be 100% backed by the Treasury, such as the launch date and interest rate paid on the bond are yet to be announced.

6. ISA allowances frozen

The annual ISA allowances remain unchanged at £20,000 for the 2021/22 tax year and £9,000 for Junior ISAs.

7. Coronavirus-related support extended

The furlough scheme – which pays 80% of employees' wages for the hours they cannot work in the pandemic – has been extended to the end of September, albeit employers will gradually need to contribute more in the latter months as the economy gradually reopens.

Furlough also supports Self-employed people in the form of grants through the Coronavirus Self-Employed Income Support Scheme (SEISS).

From next month, a fourth grant worth 80% of three months' average trading profits, up to £7,500 in total, will be available. From May a fifth grant will be released.

The SEISS has also been extended in terms of eligibility. Those who can show they were trading in 2019-20 from their tax returns will be eligible for the first time. The Government estimated this will help an extra 600,000 people, who will be able to receive the fourth and fifth grants.

What action do I need to take?

Taxes: While taxes are unavoidable there are ways in which individuals can reduce their bills by ensuring they maximise tax-free allowances and sharing them with spouses where possible. Financial planning will help avoid paying unnecessary tax.

Pensions: Anyone who believes they could be impacted by the lifetime allowance freeze should seek financial advice.

Investments: Maximising your ISA allowances is an important part of financial planning. Any unused allowance cannot be carried over – it’s a case of use it or lose it. The valuable limits on pensions and ISAs could change – even though they were untouched in this Budget – so it’s important to use them while you can.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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