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Chancellor Rishi Sunak laid out changes to personal taxes as part of his 2021 Budget, delivered on October 27. Here is everything you need to know...
Income tax charge and rates
Legislation to be included in Finance Bill 2021–22 will set the following income tax rates for 2022–23:
• the main rates applicable to non-savings, non-dividend income of taxpayers in England, Wales and Northern Ireland;
• the savings rates that will apply to savings income of all UK taxpayers; and
• the default rates, mainly applicable to trustees and non-residents.
The policy paper published on 27 October 2021 confirms that these will all remain at the same levels as 2021–22. The income tax bands to which the basic, higher and additional rates apply were set in advance by FA 2021. Income tax rates and thresholds on non-savings, non-dividend income of Scottish taxpayers are set by the Scottish Parliament. For Welsh taxpayers, UK rates are reduced by 10% and the Welsh rates of income tax set by the Welsh Parliament (Senedd) on non-savings, non-dividend income are then added.
Starting rate for savings
The 0% band for the starting rate for savings income will remain at £5,000 for 2022–23, applicable to the whole of the UK.
Other personal tax measures
ISAs and child tax funds
The 2022–23 annual subscription limit for adult and junior ISAs and child tax funds will remain unchanged, at £20,000, £9,000 and £9,000 respectively.
Household Support Fund payments
Payments made through the Household Support Fund (and similar schemes in the devolved administrations) will be exempt from income tax. This will be enacted by Statutory Instrument in spring 2022 (and no income tax on payments made from October 2021 to the date of enactment will be collected meanwhile).
Rates of income tax applicable to dividend income
The rates of income tax applicable to dividend income will be increased by 1.25% from 6 April 2022. This means that the ordinary, upper and additional rate will become 8.75%, 33.75% and 39.35% respectively. The dividend allowance will remain at £2,000.
The dividend trust rate will also increase by 1.25% to 39.35% to remain in line with the additional rate. The rate of tax applicable to loans to participators and on the dividend income of the estates of deceased persons will also increase by 1.25%.
Legislation will be introduced to effect the following pensions changes:
• increase of normal minimum pension age;
• correction to public service pension reforms; and
• extension of Scheme Pays reporting and payment deadlines.
It has also been announced that from 2025–26 a system will be introduced to make top-up payments, in respect of contributions made in 2024–25 and subsequent years, directly to low earners using the net-pay arrangements for pension savings, to correct a long-standing anomaly.
In addition, the earnings element of the ‘triple lock’ used to uprate the state pension and pension credit has been temporarily suspended for 2021–22. Instead they will be increased by the higher of the Consumer Prices Index (CPI) and 2.5%.
Increase of normal minimum pension age
Legislation will be included in Finance Bill 2021–22 to increase the earliest age at which most pension savers may access their pension savings from 55 to 57, effective from 6 April 2028. Members of uniformed-services pension schemes (e.g. the armed forces, firefighters, police) will retain the current normal minimum pension age (NMPA) of 55. Members of registered pension schemes existing at 5 April 2023 who are entitled to benefits from an age under 57 will under certain conditions be able to protect access at that age (or 55, if higher) beyond 5 April 2028.
Public service pension reform remedy
Technical amendments will be made by Statutory Instrument to supplement reforms being made in the Public Service Pensions and Judicial Offices Bill to redress the instances of age discrimination identified in the 2015 public-service pension reforms as a result of the McCloud case and relate to compensation affected individuals may receive.
Scheme Pays reporting
The annual allowance limits the ‘pension inputs’ that may be made by or on behalf of a member of a registered pension scheme(s) to £40,000 per year (reduced to £4,000 for money-purchase benefits if a member has already flexibly accessed benefits). Pension inputs above the limit give rise to the annual allowance tax charge. This is normally the individual member’s liability but in certain circumstances, the individual may ask the scheme to bear the liability, in return for an actuarially calculated reduction in the value of the individual’s pension pot. This is known as ‘Scheme Pays’.
Legislation will be introduced, to take effect from 6 April 2022, extending Scheme Pays reporting and payment deadlines to require the pension scheme to settle an annual allowance charge of £2,000 or more from a previous tax year within deadlines set by reference to when the administrator is notified of the charge rather than by reference to the end of the tax year.
Budget 2021 - Overview of Changes
• Administration and Compliance Changes
• Capital Gains Tax (CGT) Changes
• Corporation Tax and Other Business Tax Changes
• Customs and Excise Duties Changes
• Employment Tax Changes
• Personal Tax Changes
• Property Tax Changes