Autumn 2021 Budget Review for Individuals

Oct 30, 2021 | Blog

On 27 October 2021, the Chancellor delivered his third Budget in conjunction with the Public Spending Review. Below we highlight the key points in our Budget review for individuals.

Low paid workers will welcome the increases in the National Living Wage (NLW) that take effect from April 2022 and the 8% reduction in the Universal Credit income taper. However, the increase in the NLW in conjunction with the 1.25% increase in National Insurance Contributions (NICs) will be additional costs for employers and are likely to add to inflation.

Rishi Sunak continues to have to tread a fine line between raising taxes to start paying down the massive Government borrowings but at the same time stimulate economic recovery and save jobs.

The changes to tonnage tax and air passenger duty appear to be inconsistent with the goal of reducing CO2 emissions.

The national living wage increased to £9.50 an hour

Among the announcements leaked before Budget Day was an increase in the hourly rate for the National Living Wage (NLW) which was greater than inflation for those aged 23 or over, to £9.50 an hour. For an employee working a 35-hour week that would mean £17,290 a year. With the 1.25% increase in employers NIC to 15.05% on earnings over £9,100 a year would mean £1,233 on top, the cost to the employer would be £18,523 a year before pension costs.

No changes to income tax rates and personal allowance frozen

The basic rate of income tax and higher rate remain at 20% and 40% respectively, and the 45% additional rate continues to apply to income over £150,000.

As previously announced in the March Budget, the personal allowance and higher rate threshold have been frozen at £12,570 and £50,270 until 2025/26.

Some national insurance thresholds are changing

The 1.25% increase in the rate of National Insurance Contributions (NICs) paid by workers and employers announced on 7 September to provide extra funds for Health and Social care will go ahead from 6 April 2022.

This will become a new Health and Social Care Levy from 2023/24 onwards.

Although the income tax personal allowance and thresholds are frozen until 2025/26, certain NIC thresholds have been increased In line with inflation. For 2022/23, employees and the self-employed will start paying NICs at £9,880 and pay at 10.25% (self-employed) and 13.25% (employees) up to £50,270. Note that the Upper Limit is frozen in line with the income tax higher rate threshold and that the new 3.25% rate will apply to earnings or self-employed profits in excess of £50,270.

Employer contributions at 15.05% will apply to earnings in excess of £9,100 a year for 2022/23.

More time to report and pay Capital Gains Tax on residential property disposal

Many were expecting big changes to capital gains tax in the Autumn Budget, particularly as the Office of Tax Simplification (OTS) had suggested that CGT rates should be aligned with income tax rates.

The Government have however taken on board the OTS recommendation that the 30 day reporting and payment deadline should be increased to 60 days. This will be a welcome change for property owners and their tax agents and will affect residential property disposals that complete on or after 27 October 2021.

Pension tax relief unchanged

There was much speculation that the Chancellor would restrict the tax relief for saving into a pension to basic rate only. Thankfully that has not happened (yet) and the key limits are unchanged. The annual pension input limit for most taxpayers remains at £40,000 which covers both individual and employer contributions. The lifetime pension allowance which dictates the size of the individual’s fund has been frozen at £1,073,100.

Individual savings account limits frozen again

The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000 and the Junior ISA limit remains at £9,000 a year.

If you have any questions relating to our Budget Review for Individuals and how the Chancellor’s announcements could affect you, don’t hesitate to get in touch. You can contact us here.

 

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