With the medical effects of COVID19 being tamed, it was always odd-on that the March 2021 budget would be about taming its financial effects. Brexit also had to be a consideration, even if there was only tacit acknowledgement of the fact. That being so, it’s hardly a surprise that there’s little joy when it comes to debts and taxes. Here is what you need to know.
The inflation target stays the same
From the point of view of debts, what the chancellor didn’t do is arguably more important than what he did. He didn’t change the inflation target. This means that if inflation breaches 2%, the Bank of England Monetary Policy Committee will need to take action.
Of course, this is all conjecture. What’s more, if it did happen, or appear close to happening, then the inflation target might be moved. It is, however, something borrowers might want to keep in mind. At the very least, the possibility should provide extra motivation for borrowers to make sure they always get the best possible deal.
No further COVID19 support measures for debtors
The March 2021 budget contained a range of support measures for businesses and employees impacted by COVID19. There was also further support for the self-employed. The chancellor did not, however, announce any extension to the support measures for those in debt.
This means that going forward, people with financial issues will be dealing with their lender(s) on a “business-as-usual” footing. It could be argued that it is still too early to withdraw the support measures in place to help those impacted by COVID19. On the other hand, it could also be argued that withdrawing those measures is part of getting the UK to a “new normal”.
It’s also worth noting that withdrawing the COVID19-specific support measures is not going to leave hard-pressed borrowers without any support. All lenders are obliged to work with borrowers to find solutions to their financial difficulties. This could mean anything from some kind of debt-management plan to some form of insolvency.
Personal taxes effectively increase
The rates of Income Tax and National Insurance both stay the same. The tax-free personal allowance is now £12,570 and the higher-rate income tax threshold is now £50,270. These will, however, stay the same until (at least) 2025. This means that if a person’s earnings increase over that time, there is more likelihood of them paying more tax.
Overall, the VAT rate stays the same. There is, however, a discount for the hospitality sector. The VAT rate here will stay at 5% VAT until the end of September. It will then go up to 12.5% for another six months before going back to normal.
Capital Gains Tax exemptions, Inheritance Tax and the Pensions Lifetime allowance all stay frozen at their 2020/2021 rates. Again, these are next due to be reviewed in 2025. In principle, this could mean more people paying more tax. In practice, however, it could also mean that people will either divest assets quickly or hold them until the limits are raised.
Some Duties are frozen
One of the headline announcements in the budget was that the Stamp Duty holiday will be extended until the end of June. The threshold will then be lowered to £250K for a further three months before returning to normal.
Fuel duty also stays as it is. Whether or not this is a surprise depends on your point of view. On the one hand, this is now the 11th consecutive year fuel duty has been frozen. On the other hand, given the government’s carbon targets, it could have been targeted for environmental reasons.
Alcohol and tobacco duties also stay the same, although the latter was raised back in November 2020.