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The much-awaited March 2021 Budget is now published. How does it affect your wealth and finances in the months and years ahead? In this article, our Liverpool-based financial planning team here at Hanson Financial Services offers some insights on this important topic. Please get in touch if you have any questions about your financial plan in light of these changes. You can book a free, no-commitment consultation below.
Jobs & furlough
Many people were fortunate enough to continue working remotely (from home) in the repeated lockdowns since March 2020 – allowing them to keep earning. Others were furloughed, which lowered their income and brought insecurity about what would happen to their jobs once the scheme ended. With the extension of furlough until September, this group can breathe easier.
For those on lower wages, there may even be a slight pay rise on the horizon as the National Living Wage is increased to £8.91 from April (up from £8.72). However, for many others there is the possibility that they will be pushed into a higher tax bracket in the coming years. This is due to the Chancellor freezing the Personal Allowance at £12,570 for three years from 2022, with the Higher Rate frozen at £50,270 over the same period. Those receiving pay increases over this time, therefore, should be mindful about how this may affect their tax bill and seek financial advice where appropriate.
The Chancellor faced some difficult decisions leading up to this budget. On the one hand, the COVID-19 pandemic had added a huge debt burden to the UK which needed paying down – about £210 billion between March-November 2020 alone. On the other, the Conservatives had promised in their 2019 election manifesto not to raise key taxes (e.g. income tax). In strict terms, the government has kept to this promise in the March Budget.
Yet by freezing capital gains tax, inheritance tax (IHT) and others (e.g. the pensions lifetime allowance) these do amount to a sort of “stealth tax” as wages and inflation rise in the coming years. By 2025-26, for instance, a basic rate taxpayer is expected to pay over £526 more than they otherwise would have done. For a higher rate taxpayer, the extra tax may be closer to £2,700. Again, speak to your financial adviser if you are concerned about this.
Business owners and the budget
There is some good news for self-employed people in this budget. The Chancellor announced that the Coronavirus Self-Employed Income Support Scheme (SEISS) will provide grants from April, equivalent to 80% of three months’ average trading profits (capped at £7,500). There will also be support for gyms, salons, hospitality and leisure businesses in the form of a one-off payment of £18,000 to assist with re-opening costs.
You may have also noticed startling headlines about corporation tax rising from 19% to 25% in the budget. According to the Chancellor, this is likely to only affect about 10% of businesses, since the new rate only applies to firms with profits over £50,000. Most small, local businesses will not be affected. Hospitality will also benefit from a continued 5% VAT freeze until 2021.
Yet one announcement from the budget will certainly require some business financial planning. This concerns furloughed employees. Until July 2021 the government will cover 80% of their wages. Yet employers will be expected to contribute 10% from July and 20% from August. In your company’s case, consider whether financial advice would help you to stabilise the finances and serve everyone’s best interests.
Other areas of note
For first-time buyers there is some exciting news. With just a 5% deposit, it will be possible to buy a property worth up to £600,000. The government will underwrite the rest. This should open up a much wider range of mortgage products for first-time buyers from April. The cost of buying may also be lower due to the extension of the Stamp Duty holiday on properties under £500,000 until September. However, it might still be worth seeking professional advice about the best way to integrate your mortgage
hopes into your financial plan. After all, you still need to afford the monthly payments, and you need to consider the possibility of falling into negative equity (should house prices later fall).
One other crucial area to consider is inheritance tax (IHT). Here, the tax-free threshold has been frozen at the current £325,000 until 2026. Assuming you use your entire allowance and that the allowances rise with inflation at 2%, the extra IHT liability could stand at over £32,000. Again, if you think this may affect your estate plan detrimentally, get in touch with our Liverpool financial advisers here at Hanson Financial Services and we can discuss your options together.
Are you interested in talking to a financial adviser
about your pension and investment planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
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