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Residential property & UK trusts, tax and estate planning

Looking at the Budget 2021 from a Private client perspective

Today’s Budget was most notable for its restraint, and for the widely-predicted tax-raising measures which were not, in the end, included. James Austen in our Private Wealth team comments.

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PROPERTY

SDLT Holiday Extension

Having heard the representations from housebuilders and buyers, the Chancellor announced that the current SDLT threshold of £500,000 will be extended until 30 June 2021. After that date, there will be a gradual tapering of the allowance, with the SDLT threshold rising to £250,000 until 30 September, and back to the pre-pandemic level of £125,000 from 1 October 2021. This sensible package will give the housing sector more certainty, and allow a smoother transition back to the original rate, avoiding the “cliff-edge” that the property industry was warning of.

Mortgage Guarantee

In parallel with the continued SDLT holiday, the government plans to increase support for first-time buyers, by announcing a mortgage guarantee scheme to support 5% deposits backed by a government guarantee. A number of major high street mortgage lenders are understood to be introducing new products requiring only 5% deposits under this scheme.

PERSONAL TAX

As widely predicted, the Chancellor decided to freeze the Income Tax personal allowance at £12,500 and the higher-rate threshold of £50,000.  Over time, this will mean that more taxpayers will pay Income Tax, and at a higher rate than before – bringing in an estimated £8.180bn in annual tax receipts by 2025/26.  In addition, in a move which will surprise no-one, the Chancellor also announced that the Inheritance Tax nil rate band will be frozen at £325,000, and the Capital Gains Tax annual exempt amount will be frozen at £12,300.  However, against some predictions, the Chancellor decided not to break the Conservative’s ‘triple lock’ manifesto pledge, and so the headline rates of Income Tax, National Insurance and VAT will remain unchanged  (though their thresholds will also be frozen).  Most notably, the Chancellor resisted the temptation to increase CGT in this Budget – a move that had been widely feared (and given cover in the OBR’s CGT Review published in 2020).  Nor is there – yet – any sign of a consultation on possible reforms to CGT or Inheritance Tax, which will be a great relief to more wealthy taxpayers.

Some higher earners may be concerned that the pension lifetime allowance will be frozen at the current level of £1,073,100 (worth £300m to the Exchequer by 2025/26).  But pension tax relief has not been restricted and this is arguably of greater significance to most pension savers.

CORPORATION TAX

As predicted, the Chancellor did announce an increase to the headline rate of Corporation Tax. From April 2023 (NB: not April this year), the headline rate of Corporation Tax will rise to 25%, which is somewhat higher than predicted before the budget. However, in a welcome parallel move to support smaller businesses, the Chancellor announced a new small profits rate of 19% for those businesses with profits of £50,000 or less. The increase between the small profits rate and the headline rate will be tapered so that only those businesses with profits in excess of £250,000 will pay the full 25%.

In a significant move, the Chancellor also announced much more generous loss relief for businesses: they will be able to carry back losses of up to £2m for 3 years which will be a significant lifeline for those businesses carrying tax losses as they return to profit in future.

The Chancellor also announced a new so-called “super deduction” investment relief, which will allow companies to reduce their tax bill by 130% of the cost of capital investment in the UK.  This was announced as being a boost aimed at releasing cash reserves accumulated by some businesses which have done well during the pandemic – but one suspects it may have had as much to do with encouraging a post-Brexit UK investment boom.

Authors

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James Austen

Partner

james.austen@collyerbristow.com