With the financial fallout from COVID-19 over the last year being the fiscal equivalent of fighting a war at more than £280 billion we will be paying back that debt for many decades to come.
The new tax year looks much the same as the previous 12 months from a personal tax planning perspective – while we gradually recovery from the economic affects of the pandemic.
Personal Tax Planning Factsheet
Tax increases and allowances effective April 2021
- Personal tax allowance increased to £12,570
- Basic-rate threshold capped at £50,270 higher-rate up to£150,000
- Income tax rates have been frozen until April 2026 – which could push many taxpayers into higher tax brackets over the next five years -resulting in them paying considerably more income tax
- Dividends allowance remains at £,2000
- Above the dividends threshold – a basic-rate taxpayer will pay tax at 7.5% and 32.5% for a higher-rate taxpayer.
Capital Gains Tax (CGT)
- Assets sold in 2021/ 2022 for more than £12,300 will be liable for capital gains tax (CGT)
- The rate of tax will depend on the type of asset sold and which rate of income tax you pay
- Assets held in a trust are treated differently – capital gains tax kicks in at 28% from residential property or 20% for gains from other chargeable assets worth more than £6,150
Pensions
- For 2021/ 22 until April 2026 – the lifetime pensions allowance remains capped at £173,100
Some pension savers face being hit with a 55% tax charge if they withdraw anything above this limit as a lump sum over the next five years. If the amount is taken as income – they face a 25% tax charge - The maximum you can save into your pension pot for 2021/22 remains at £40,000.
Inheritance Tax
- Estates worth less that £325,000 will be tax-free while the flat-rate of inheritance tax above this threshold remains at 40%
- The final increase to the residence nil-rate band was announced in 2020/21 – making it possible to protect a further £175000 when passing on the family home to children or grandchildren.
For personal tax advice and support on 01223 810 100
