The income tax personal allowance and higher rate threshold will be frozen from 6 April 2022 until 5 April 2026. The capital gains tax annual exempt amount, the pensions lifetime allowance and the IHT and residence nil rate bands, meanwhile, will be frozen at their current rates.
The Chancellor has confirmed a series of tax freezes in the Spring Budget 2021.
As previously announced, the personal allowance will increase to £12,570 for 2021/22 (currently £12,500) and the basic rate limit will increase to £37,700 for 2021/22 (currently £37,500).
The higher rate threshold (ie, the personal allowance added to the basic rate limit) will therefore increase to £50,270 for 2021/22 (currently £50,000). This means that, for the first time, some basic rate taxpayers will be subject to the high income child benefit charge that applies to incomes over £50,000.
The personal allowance of £12,570 and the basic rate limit of £37,700 (ie higher rate threshold of £50,270) will then be frozen until 5 April 2026 rather than increasing annually in line with inflation.
As the NIC Class 1 upper earnings limit and the Class 4 upper profits limit are aligned with the income tax higher rate threshold, they too increase next year to an annualised level of £50,270 and will be caught up in the freeze.
These thresholds and rates apply to the UK, save that those for non-savings and non-dividend income for Scottish taxpayers are set by the Scottish Parliament.
Ahead of the Budget, there were rumours that a freeze could apply to this year’s thresholds and rates, which would have created a significant administrative burden for HMRC, employers and payroll software developers alike. ICAEW welcomes the government’s decision to continue as planned, having previously announced the increases and laid the legislation to put them into effect.
Also frozen to 5 April 2026 are the:
- capital gains tax annual exempt amount of £12,300 for individuals, personal representatives and some types of trusts for disabled people, and £6,150 for trustees of most settlements. The OTS main report on capital gains tax is awaited but theirits first report recommended a reduction to the annual exempt amount;
- pension lifetime allowance at £1,073,100; and
- inheritance tax nil rate band (NRB) of £325,000 and the IHT residence NRB of £175,000. The tapering of the residence NRB will continue for estates worth more than £2m.
Frozen on the business front until 31 March 2024 are VAT registration and deregistration thresholds. This means:
- the taxable turnover threshold which determines whether a person must be registered for VAT will remain at £85,000; and
- the taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.
Meanwhile, frozen until 5 April 2022 (throughout the UK) are the:
- band of savings income that is subject to the 0% starting rate – unchanged at £5,000;
- adult ISA annual subscription limit - unchanged at £20,000;
- annual subscription limit for Junior ISAs - unchanged at £9,000; and
- annual subscription limit for Child Trust Funds - unchanged at £9,000.
Finally, as announced by the Chancellor in his speech, we welcome the fact that there will once again be no increases in alcohol and fuel duties.
Budget 2021 Report
ICAEW's Tax Faculty will be publishing its comprehensive summary of the tax-related Budget announcements on Friday 5 March.
Autumn Budget 2021
Read all of ICAEW's insights and analysis of the Chancellor's announcements on 27 October, as well as useful background information.
Coronavirus is not just a world health emergency; it is an economic one too. ICAEW is monitoring the situation closely and collating resources as conditions unfold.
Budget 2021 update
In this webinar the Tax Faculty team will be reflecting on the announcements from the Budget.
Brexit – impact on members
The transition period ended on 31 December 2020 and a UK-EU trade deal has been agreed. The new rules are effective since 1 January 2021. Find a range of resources to help you navigate this new chapter.Find out more