Whilst there were no increases in income tax or capital gains tax rates in Wednesday's Budget the exempt amounts and the income tax rate bands will be frozen from 6 April 2021 until the 2025-26 tax year. The Budget notes state that ‘this policy takes steps to ensure the sustainability of the public finances and funds our vital public services in a fair and sustainable way’.
The IHT rates and bands also remain the same until at least 2025-26.
The income tax personal allowance will increase slightly to £12,570 from 6 April 2021 (currently £12,500 for the 2020-21 tax year). It will then be frozen at that rate for all years to 2025-26. The basic rate limit will also increase slightly from 6 April 2021 to £37,700 (currently £35,500) and will also be frozen at that rate until 2025-26.
The higher rate threshold (the Personal Allowance added to the basic rate limit) will be £50,270 for tax years 2021-22 to 2025-26. The National Insurance contributions upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 for these years.
From 2026-27 onwards, existing legislation means that the default is for the personal allowance and basic rate limit to be indexed with consumer price index (CPI).
Capital Gains Tax
The Capital Gains Tax (CGT) annual exempt amount will remain at its current (2020-21 tax year) amount of £12,300 for individuals and personal representatives and £6,150 for most trustees of settlements for the tax years from 2021-22 to 2025-26.
CGT rates are also unchanged for tax year 2021/22 and will remain at 10% for basic rate taxpayers and 20% for higher rate taxpayers, trustees and personal representatives other than gains on UK residential property and carried interest which are taxed at 18% for basic rate taxpayers and 28% for higher rate individuals, trustees and personal representatives.
Business Asset Disposal Relief (formerly Entrepreneurs' Relief) & Investors Relief
A CGT rate of 10% in respect of a lifetime limit of £1 million of qualifying gains remains for the 2021-22 tax year in respect of Business Asset Disposal Relief. The 10% CGT rate continues to apply for investors relief and the £10m lifetime limit remains for the 2021-22 tax year.
The government will introduce legislation in Finance Bill 2021 so that the inheritance tax nil-rate bands will remain at existing levels until April 2026.
The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
This means qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
Individual Savings Account (ISA) annual subscription limit
The adult ISA annual subscription limit for the 2021- 22 tax year will remain unchanged at £20,000.
Junior ISA limit
The annual subscription limit for Junior ISAs for 2021- 22 will remain unchanged at £9,000.
Child Trust Funds
The annual subscription limit for Child Trust Funds for 2021-22 will remain unchanged at £9,000.