Naz Financial

A Personal Financial Blog from Naz Miller

BUDGET 21: Impact on Pensions, Savings and Personal Finance

Chancellor Rishi Sunak’s second Budget 21, his second, was focussed on restarting the UK economy post-lockdown. There were some specific giveaways and no immediate tax rises. That said, there were some tax rises pencilled in for the future. And a few stealth taxes.

“Once we are on the way to recovery, we will need to begin fixing the public finances and I want to be honest today about our plans to do that,” said Sunak.

So, let’s start with pensions.

Budget 21 and Pensions

The most notable action taken by the Chancellor in this area of interest was to do nothing. He froze the pensions Lifetime Allowance (LTA) at its current level of £1.073m. High earners with large workplace pensions, such as senior NHS doctors and some company directors are the ones to be affected here.

The LTA determines how much can be saved, or grow within a pension, before being taxed. That was due to rise next year but won’t now, until at least 2026.

Chancellor in Drag

This is what’s known as fiscal drag.

Using inflation as a means of bringing in more taxes is nothing new, of course. It looks like taxes haven’t increased, yet as salaries increase, people get drawn into higher tax bands and pay more taxes.

So, Chancellor Sunak applied this principle also to income tax, inheritance tax and the annual exemption for capital gains tax. All remain as they are, after any increments in April 2021 from previous budgets, until 2026. All this doing nothing will bring in more to the Treasury each year.

Savings and Budget 21

There was no change to the thresholds for ISAs (Individual Savings Accounts). Annual savings limits remain at £20,000 for adults and £9,000 for Junior ISAs. So, more fiscal drag as the purchasing power of that £20k is eroded by inflation.

Property

The stamp duty holiday that fuelled growth in the housing market is extended by 3 months to the end of June. After that, it’ll taper over the subsequent three months. This is to try and avoid the ‘cliff-edge panic’ evident in the market recently.

Introduced in July 2020, the stamp duty holiday lifted the threshold at which stamp duty’s applicable from £125,000 to £500,000. This saves buyers up to £15,000. Few noticed that prices rose by at least that amount as a direct result. House prices rose by an average 6.9% in the year to February 2021, so it’s costing you more if your house cost over £217,392.

In addition, first-time buyers requiring a 95% mortgage have been frustrated lately as lenders removed these products from the market during 2020.  Now, the government will encourage banks to offer these mortgages on properties worth up to £600,000 by guaranteeing a portion of the home loan.

And finally, if all that makes you want to go and grab a drink, great news! All alcohol duty has been frozen for the second year in a row. That was my take on Budget 21.

budget-21-cheers-rishi
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Naz Miller

Naz Miller

I'm Naz and I'm a Financial Adviser. Prior to working in private practice, I spent 34 years working at Lloyds Bank in Cambridge and surrounding areas. My work has always focused on helping clients achieve their long-term financial objectives.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.