BUDGET 2021: Lifetime allowance and IHT and CGT thresholds frozen

The Chancellor has confirmed the freezing of a number of of tax allowances, including Inheritance Tax (IHT) thresholds, Capital Gains Tax (CGT) thresholds, as well as the pension lifetime allowance, until 2026.

In his Budget speech at the House of Commons, Rishi Sunak also confirmed that income tax, national insurance, and VAT rates will be frozen until next year.

Sunak said the personal income tax allowance is to be frozen at £12,570 from April 2022 to 2026, while the higher rate income tax threshold is to be frozen at £50,270 from 2022 to 2026.

Commenting on Sunak’s taxation announcements, Killik & Co head of wealth planning, Svenja Keller, said: “By freezing a raft of tax allowances until 2026, Sunak can claim to be sticking to the Conservative party’s pledge not to raise taxes in headline terms and it may, on the face of it, look like it will have little impact.

“But taking into account inflation and earnings growth, failing to increase allowances will have a real impact on an individual’s net tax position and their wealth.”

interactive investor head of pensions and savings, Becky O’Connor, added: “Freezing allowances is a back-handed way of raising taxes, as wage inflation and asset price inflation increase the number of people pushed over the thresholds at which they have to pay more tax.
 
“The Chancellor has avoided overtly-named wealth taxes by making these changes to existing allowances, which will result in higher tax bills for an increasing number of people who build up assets – whether that’s in pensions or property values, in the next five years.
 
“The issue coming down the line is that what hits today’s wealthy could hit normal earners and diligent investors in future decades.”

Commenting on the freeze to IHT and CGT rates, 1825 Financial Planning corporate director, Shona Lowe, said: “A freeze on IHT and CGT rates may impact only a small number this year, but with the rates being frozen until 2026 we would expect to see a significant number of people being impacted in real terms as the years go on.

“As a result many more will have to deal with the complexities of these taxes and could benefit from accessing financial advice to help navigate the best solution for their circumstances.
 
“We are expecting government to publish a package of tax-related consultations on 23 March, which may reveal further details around these measures, and we will engage fully with that process.”

The Chancellor has also confirmed the pensions lifetime allowance is to be frozen at £1,073,100 for the rest of this Parliament – raising £1bn between now and 2025/26.
 
“While freezing the lifetime allowance at just over £1m might sound like a relatively minor move aimed at the wealthiest in society, large swathes of middle Britain are now at risk of being dragged into its net,” commented AJ Bell senior analyst, Tom Selby,
 
“High-earning doctors and consultants in the NHS who benefit from generous defined benefit pensions, for example, will be among those hit by this measure.
 
“Furthermore, the longer it is kept at the current level, the more it will cap the retirement saving aspirations of future generations.
 
“The impact will depend in part on what happens to inflation over the next four years. If CPI were to rise in line with official OBR forecasts, it would imply an increase in the lifetime allowance of around £85,000 by 2025/26.”

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