Press release
3 March 2021
Rachel McEleney, associate tax director at Deloitte, said:
“As confirmed in the 2020 Spending Review, the personal allowance and basic rate band will be increased from April 2021 in line with the Consumer Prices Index (CPI) for the year to September 2020 (0.5%). For 2021/22 this results in a personal allowance of £12,570 (£12,500 in 2020/21) and a basic rate band of £37,700 (£37,500 in 2020/21), with a higher rate threshold of £50,270 (£50,000 in 2020/21). The Chancellor has announced today that these thresholds will then be frozen until April 2026. This measure is forecast to raise over £19 billion over the next five years.
“The combined personal allowance and higher rate threshold changes mean that a basic rate taxpayer will save £14 of income tax in 2021/22 compared to 2020/21 and a higher-rate taxpayer will save £68. Those with income over £125,140 who do not receive a personal allowance would see an income tax saving of £40.
“Most NIC thresholds have also been increased by CPI. The upper earnings limit (above which the NIC rate is 2%) is linked to the higher rate threshold for income tax. This results in an increase in the primary threshold for employees (above which NICs are payable) from £9,500 per annum to £9,568, and an increase in the upper earnings limit from £50,000 per annum to £50,270. Similar adjustments have been made to the upper and lower profits limits for the self-employed. As with the income tax higher rate threshold, the upper limits for NIC are frozen at £50,270 until April 2026. It is expected that the lower thresholds will continue to be increased by CPI each year.
“Taking account of NIC, most basic rate taxpayers should save a total of £22.16 in 2021/22 compared to 2020/21 - income tax saving of £14 and NIC saving of £8.16. Most higher rate taxpayers should see a net saving of £49.16 - income tax saving of £68 and NIC increase of £18.84. Those with income over £125,140 would see a net saving of £21.16 - income tax saving of £40 and NIC increase of £18.84. As the income tax thresholds are being frozen, similar savings are unlikely to arise again until April 2026.
“The capital gains tax annual exemption is to be frozen at its current level of £12,300 for individuals, and £6,150 for trustees, until 2025/26. Similarly, the pensions lifetime allowance will be frozen at its current level of £1,073,100 over the same period. These measures are forecast to raise £65 million and £990 million, respectively, over the next five years. Despite much speculation before the budget, no other significant changes were made to capital gains tax.”
Ends
Regional data:
In Scotland the rates applying to non-savings non-dividend income are set by the Scottish Parliament. The personal allowance, national insurance and rates and thresholds applying to other income and gains are the same as the rest of the UK. After deducting the personal allowance (£12,570), the following Scottish rates apply in 2021/22:
|
Taxable income |
Rate |
|
First £2,097 |
19% |
|
Next £10,629 |
20% |
|
Next £18,366 |
21% |
|
Next £118,908 |
41% |
|
Above £150,000 |
46% |
Although Wales has the power to set devolved income tax rates, these are the same as the main UK rates for 2021/22.
High income child benefit charge (HICBC)
The HICBC is an income tax charge that applies where the higher earner of a couple has income exceeding £50,000 and one or both of them has received child benefit payments. The charge is 1% of the child benefit payments for every £100 of additional income, resulting in full clawback where income is £60,000 or more. These thresholds have been fixed since the charge was introduced in 2012/13. To date the charge has only affected higher rate taxpayers.
As the higher rate threshold has increased to £50,270 for 2021/22, but the HICBC threshold remains £50,000, this means that some basic rate taxpayers will become subject to the HICBC. When combined with changes in the NIC thresholds, this can result in high effective marginal rates for those with income close to the thresholds. For example, if the higher earner has income of £50,000 in 2021/22 and child benefit payments of £1,827 (two children), they should expect to pay income tax and NIC totalling £12,338. If their income were to increase to £50,200, then total income tax and NIC would be £12,438 (i.e. they would only keep 50% of the additional income).
Had the HICBC threshold been adjusted by CPI each year since its introduction, it would be round £58,000 for 2021/22.
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Deloitte has a range of spokespeople available to comment on today’s statement. They can be reached on 020 7007 3333 or 0207 303 5054 or one of the following numbers:
• Ian Stewart – chief economist (07789 036 944)
• Amanda Tickel - head of tax policy (07920 270 964)
• Rachel McEleney - personal tax (07826 891 752)
• Zubin Patel – corporate tax (07795 968 483)
• James Warwick - employment tax (07768 178 264)
• Gareth Pritchard – indirect tax (07920 006 216)
• Mike Barber – climate change/sustainability (07920 270 964)
• Jonathan Evans – stamp duty (07818 535 803 /07789 036 944)
• Gerry Biddle – business rates (07785 381 369)
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