The chancellor delivered a “Bounceback Budget” designed to get the UK economy moving as lockdown lifts, with few tax changes to trouble the wealthiest.
However, you can be sure that Rishi Sunak’s generosity will be running thin by November, when I expect a “Payback Budget” to cover the cost of extending emergency pandemic measures.
For now, prudent FT readers will examine their personal balance sheets to ensure they maximise current tax allowances ahead of any changes.
Pensions are always the big worry at Budget time, but one of the only significant announcements was the decision to freeze the pensions lifetime allowance (LTA) at £1.07m until 2026.
The only hint of this today was the chancellor’s insistence that “once we are on the way to recovery, we will need to begin fixing the public finances”.
Budget day was all about Rishi dishing out the dosh; in three weeks we’ll have more of a sense of how the Treasury might attempt to claw some of it back. Experts believe consultations on capital gains tax (CGT) and the digitisation of the tax system are also highly likely, anticipating that significant changes could be signposted at this year’s autumn statement.
As the chancellor seeks to make savings, so should you.
If you’ve amassed spare cash under lockdown, may I alert you to the “carry forward” rules on pension tax relief? If you have used your full annual allowance in the current tax year (£40,000 for most people) you are able to go back and utilise any unused allowance from the previous three tax years.
It could be a case of use it before you lose it — but that’s assuming Sunak can avoid the trip wires that snared his predecessor George Osborne when he attempted to make radical changes to upfront tax relief.
If this valuable advantage is taken away, Isas will become a much more flexible option for retirement saving — and the chancellor made no changes to the annual £20,000 savings limit.
According to investment platforms, there are already around 1,400 “Isa millionaires” in the UK who have amassed £1m or more in their stocks and shares Isas since they were launched in 1999.
They won’t be clobbered by a lifetime savings allowance — although I’m reluctant to mention this in case the chancellor gets any ideas. Unlike pensions, there’s no income tax to pay on Isa withdrawals and you can access your money when you like.
Any changes to pensions would be fiercely resisted, but could the sop be increasing the annual Isa allowance at the next Budget and making it easier for companies to offer Isa contributions to their employees?
The other Budget dog that didn’t bark was capital gains tax (CGT). But advisers predict changes — the second half of a review from the Office of Tax Simplification is expected imminently — and how CGT interacts with the inheritance tax system will take some chewing over in any future consultation.
For now, wealth managers are poring over clients’ finances to assess their future CGT liability. Michael Martin, private client manager at 7IM, has a client who decided to sell down £500,000 worth of shares last month, figuring that today’s 20 per cent rate on equity gains for higher-rate taxpayers was not going to fall in future, but could well increase.
For those with smaller investments held outside pensions or Isas — company share options are a classic liability — there’s still time to act either side of the tax year to “bed and Isa” up to £40,000 worth (in other words, to sell down your holdings and repurchase them inside a tax-free wrapper).
Depending on your individual circumstances, it could also be possible to cut tax bills by combining your own annual CGT allowance of £12,300 with that of your spouse or civil partner — another allowance that resets with the dawning of the new tax year just over a month from now.
The payback is coming — so the best we can do is prepare for it.
Claer Barrett is the FT’s consumer editor; email@example.com Twitter and Instagram @ClaerB