Rather than the much anticipated increase in capital gains tax rates, or even changes to business assets disposal relief (previously known as entrepreneurs’ relief), the Chancellor has instead decided to freeze income tax, capital gains tax and inheritance tax thresholds.
The Chancellor acknowledged that the fairest route was to have the highest earning households contribute more, and the way this was to be achieved was by freezing tax thresholds rather than increasing headline tax rates on income tax and national insurance. This also meant that the manifesto pledge not to increase these rates could be met, although the impact of fiscal drag will in effect mean that some taxpayers will pay more income tax and national insurance because of this.
The planned increases to the personal allowance from 6 April 2021 will still take place but then these will be frozen until April 2026. In addition, the planned increases in the rate bands will take place for this year but then will also be frozen until April 2026. So, for the next five tax years the personal allowance will remain at £12,570 and the higher rate income tax threshold will be £50,270.
In addition, the capital gains annual exemption (the limit over which individuals pay capital gains tax) will also remain at £12,300 until April 2026. The capital gains annual exemption allowance for trusts will generally be half this.
The inheritance tax nil rate band of £325,000 will also remain frozen, and it should be noted that it has been at this level since 6 April 2009!
Finally, the pensions lifetime allowance will remain frozen at £1,073,100 and this will no longer be automatically increased in line with the consumer price index.
The Treasury have previously announced that they are intending to publish a range of tax related consultations on 23 March 2021 – whether this will give any insight into the future of capital gains tax and inheritance tax is yet to be seen.
If you would like to discuss this in further detail, please get in touch with your usual contact or e-mail us at email@example.com.