Robert Young, Hanover financial management, pensions and employee benefits specialist reflects on the latest budget update and dissects what they mean for individuals with businesses, pensions, savings and investments.
State Pension Underpayments
Just in advance of International Women’s Day on Monday 8 March, there is some good news for women from The Department for Work and Pensions (DWP). They have determined that State pensions have been underpaid to women dating back two decades. This position is to be redressed over the next 5 years, and estimated to cost the Government £3 bn - suggesting this impacts more women than the pension industry anticipated.
The Lifetime Allowance is to be fixed at this year’s amount of £1,073,100. It will no longer rise in-line with the Consumer Price Index (CPI). This will not just impact really high earners, but particularly in the short term will impact long serving employees at a senior level in the medical and teaching professions.
After the introduction for the 2020/21 tax year of a higher level of remuneration before the tapered annual allowance kicks in, largely to ensure that senior doctors and medical practitioners and senior teachers did not suffer the reduced annual allowance this creates, these same groups are being hit by the freezing of the Lifetime Allowance (LTA). This seems a poor return for those who have been working hard to help us all pull through the coronavirus pandemic. If you are impacted by this, now is the time to take some advice and see what if any options are available to you.
Instead of freezing the LTA, given that there is already in place an Annual Allowance which limits the amount that can be paid in and receive tax relief, consideration should be given to removing the LTA. Government wish to encourage all of us to save for retirement but the LTA penalises those who invest consistently over a long time and achieve good investment performance and which is ultimately more likely to stop us saving for retirement.
Green NS&I Product
The Chancellor announced in the budget a “Green Bond” launching in the summer by National Savings and Investments (NS&I). These bonds will raise funds for “green” projects and help the country on its journey to being carbon neutral, while at the same time helping to boost saving. The terms are not yet known but with government backing through NS&I it is anticipated these will prove to be popular, given the growing demand for sustainable investments.
The Inheritance Tax (IHT) threshold is to remain frozen at £325,000 and the residential nil rate band will also be fixed at £175,000 until 5 April 2026. The result is that more and more people will fall into the IHT net so now is a good time to take advice and review what actions you can take to reduce or remove your liability to IHT.
Auto enrolment charge cap consultation
An auto- enrolment charge cap consultation is to be launched in the next month. The primary aim of this is to encourage pension schemes to invest in a wider range of assets, particularly venture capital and growth equity assets. There is a significant amount of capital in defined contribution workplace pension arrangements and the Government wishes to unlock this to help support the UK economy post-covid. In particular, this will look at averaging performance fees over a number of years. This could be a win for the economy and a win for pension savers with enhanced investment returns (just be aware of the LTA cap though!)
Stamp Duty and Mortgage Guarantee Scheme
The cut in stamp duty has been extended to 30 June 2021 but be aware that the transaction must be completed by then. To smooth the transition back to normal levels, the nil rate band will be £250,000 up to 30 September, reverting to the normal level of £125,000 from 1October. In addition, the Government is introducing a guarantee scheme to encourage lenders to offer mortgages with only a 5% deposit, as these mortgages will benefit from a government guarantee. If you are looking at moving onto the housing ladder, now may be a good time to do so. If you don’t have the deposit money, or cannot raise a large enough mortgage, perhaps a family member may be able to provide this, helping to reduce their potential IHT at the same time. These are serious financial matters so don’t forget to take advice on all aspects.
Aspects of the budget relating to businesses and business owners
The Corporation Tax rate is to increase to 25% but only for financial years beginning on or after 1 April 2023 and for businesses with profits over £250,000. For small businesses with profits below £50,000 the rate will remain at 19%. There will be marginal relief introduced for businesses with profits between £50,000 and £250,000. Businesses both incorporated and unincorporated will be able to carry back trading losses for three years rather than just one year in 2020/21 and 2021/22 subject to certain thresholds. Business should look at the fine details of these changes and take advice on their impact.
Coronavirus Support Schemes
The furlough scheme is being extended to 30 September 2021 and employees will continue to receive 80% of salary up to £2,500 a month. However, employers should note that from 1 July 2021 they will be required to pay 10% of unworked hours, rising to 20% in August and September. In addition employers must continue to meet the cost of employer National Insurance contributions and pension contributions.
Support for the self-employed continues up to 30 September 2021. A fourth grant for the period February 2021 to April 2021 will provide 80% of three month’s average trading profits subject to a cap of £7,500. Eligible self-employed workers will be able to be claim in late April. To be able to claim you must have filed a 2019/20 tax return, so if you became newly self-employed in 2019/20 you will now be able to claim. A final fifth grant for the period 1 May 2021 to 30 September 2021 will be available to claim in late July and will be subject to a turnover test.
To discuss the impact of the budget on your business, investments, pensions or savings please get in touch. We would be happy to discuss your requirements and ensure your funds are working effectively for you.
Robert Young | Partner & Consulting Actuary
Hanover Financial Management Limited is an appointed representative of Culver Financial Management Limited which is authorised and regulated by the Financial Conduct Authority No. 114852. Hanover Financial Management Limited is registered in England and Wales with number 8586887. Culver Financial Management Limited is registered in England and Wales with number 01157569. The Financial Conduct Authority does not regulate tax advice or trusts. The value of investments can fall as well as rise. You may not get back what you invest.
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