While the chancellor’s March Budget didn’t include any headline-grabbing tax rises, the announced freezes to allowances will have implications over the next five years.

Whether you are working and saving for a pension, or in retirement and thinking about the best way to manage your estate, Boolers can help.

Keep reading to find out what changes have occurred to taxes and allowances, and how we can help mitigate their impact on your finances.

The Personal Allowance freeze means you could pay more tax on your earnings

If you are still working and saving toward your pension, the amount of Income Tax you pay could affect the size of the pension contributions you can comfortably make.

The chancellor raised the Personal Allowance for the 2021/22 tax year from £12,500 to £12,570. The basic rate threshold will increase by £200 to £37,700 and the higher rate threshold will be £50,270.

These rates will then be frozen until 2026. This means that any wage increase you receive in the next five years could see you pay more Income Tax in real terms.

The Treasury expects the freeze to push 1.6 million people into the higher tax bracket by 2024, raising around £6 billion in much-needed tax revenue.

There might be ways to lower your taxable income, such as through pension contributions into a salary sacrifice scheme. Speak to us if you are concerned about the potential impact of the Personal Allowance freeze and we can help put a plan in place that is right for you.

You will need to be aware of the frozen Lifetime Allowance (LTA) limit

Since 2015 the LTA has risen in line with the consumer price index (CPI). This would have resulted in a 0.5% increase in April 2021. Instead, the chancellor froze the allowance at its current limit of £1,073,100.

As with the other freezes announced, the allowance will remain at its current level until 2026.

The allowance is a limit on the amount you can save into all the pensions you hold – excluding the State Pension – before incurring tax charges. Certain life events, such as turning age 75 or accessing pension benefits via specific options, including an uncrystallised funds pension lump sum (UFPLS), will trigger a test against the LTA.

Any funds over £1,073,100 will be liable for an LTA charge. This could be up to 55% for any excess you choose to take as a lump sum, or 25% if you draw the additional amount as income.

The planned CPI increase would have been small this year, but over the next five years, and assuming a rise in inflation, the freeze could begin to have a bigger impact. Get in touch if you think you might be in danger of exceeding the LTA and we can help you to mitigate the impact of the extra charge.

Certain tax freezes could make estate planning harder

The chancellor also used the Budget to announce a freeze to the Inheritance Tax (IHT) threshold and the Capital Gains Tax (CGT) annual exemption. As with the other freezes announced, these are due to remain in place until the end of the 2025/26 tax year.

The IHT freeze means the threshold remains at £325,000. The “residence nil-rate band” stays at £175,000.

The annual CGT exemption is set to remain at £12,300.

Over the next five years, as the economy recovers from the effects of the pandemic, growth in your investments, and the price of the property you own, could see you become liable for additional tax charges.

Managing your estate is a complex task at any time. Ensuring you have sufficient money in retirement to live your desired lifestyle while leaving enough – but not too much – behind for loved ones, is a difficult juggling act.

At Boolers, our team of dedicated professionals has years of experience. We can help you manage your pension, investments, and your estate tax-efficiently, making the most of allowances and exemptions to ensure you remain on track to attain your long-term goals.

Some good news from the Budget

The Budget contained good news for homebuyers in the form of an extension to the coronavirus Stamp Duty holiday and the return of the Help-to-Buy scheme. This allows first-time buyers to get on the property ladder through the offer of 95% mortgages.

There was also news of further grants for the self-employed and an extension to the furlough scheme, until September 2021.

Get in touch

If you are worried about the impact of any aspect of the Budget on your long-term financial plans Boolers can help, so please contact us today.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Workplace pensions are regulated by The Pension Regulator.