Budget 2021: Private client – Hidden tax costs for individual taxpayers

In the build up to the Budget, individual taxpayers may have been bracing themselves for increases in capital gains tax, the introduction of a wealth tax and a wider change to capital taxes, which would have increased the annual tax burden significantly. In the end, it was not so; it seems that individual taxpayers have had a reprieve and most of the tax burden has fallen on corporates.

However, the Government has confirmed that personal allowances (the amount of tax free income individuals can receive each year), the capital gains tax annual exemption, the inheritance tax nil rate band and the basic rate of tax band will all increase as expected in April 2021 and then remain frozen for at least five years until 5 April 2026.

Whilst that might seem quite benign, by the final year of that freeze an additional £9bn will be collected in the 2025/26 tax year as a result. For context, the headline increase in corporation tax will be bringing in an additional £17bn in the same tax year.

Some wider impacts of the Budget on individuals include the following:

  • Both the coronavirus job retention scheme (CJRS or furlough scheme) and self-employment income support scheme (SEISS) have been extended and will now end in September 2021. 
  • The increase in the threshold before stamp duty land tax (SDLT) is payable, announced last year, will remain in place for three further months and then be phased out, returning to its previous level from 1 October 2021.
  • Individuals whose family wealth is wrapped in a corporate body, such as a personal or family investment company , are likely to be impacted by the increase in the rate of corporation tax to 25 per cent from 1 April 2023.

It may also be the case that some of the general corporation tax increases are passed on to individuals spending with those companies, or else to shareholders in the form of lower dividends . Ultimately, the tax burden falls on individuals, even if this is not directly visible.

Overall though, this is a Budget with a focus on support for individuals and businesses for the remainder of the year, with a clawback of taxes to follow which, although mainly falling on companies, will have an indirect burden on individuals.

Gary Heynes Gary Heynes

Partner, Head of Private Client