In the March budget the Chancellor announced he would be freezing all tax allowances and thresholds from 2021/22 until 2026, but there were some pre planned changes coming in anyway.

The changes are detailed below:

Income Tax

The income limit for the tapering of the Personal Allowance remains at £100,000.

Dividend tax rates will remain the same:

National Insurance

Class 1 Weekly Threshold:

The class 1 rates will remain at:

Class 2 NI:

Class 3 NI:

The weekly rate for voluntary Class 3 NI will increase from £15.30pw to £15.40pw.

Class 4 NI:

Capital Gains Tax

The annual exempt amount will remain at £12,300 for individuals.

For trusts this will remain up to a maximum of £6,150, dependent upon how many trusts a settlor has created.

Inheritance Tax

The Residence Nil Rate Band remains at up to £175,000 per person, or the value held in a main residence if lower. This only applies if a property is left to a direct descendant (children or grandchildren).

The Nil Rate Band remains at £325,000 per person.

Each of these allowances is inheritable by a surviving spouse although the Residence Nil Rate Band can be tapered away for estates valued at above £2m.

Following the 2021 Budget announcement, we have summarised below the key take-aways in order to provide a timely update. Whilst there seems to be little immediate change, we will pick up any required action with clients on an individual basis. If you have any concerns following the announcement, please don’t hesitate to contact a member of the team.

• • Income tax: For 2021/22 Personal Allowance increasing to £12,570, basic rate band to £37,700 meaning a higher rate threshold of £50,270 – but then these figures will be frozen until April 2026. No changes to dividend allowance, personal savings allowance, starting rate band for savings.

• • Pensions: Lifetime allowance for pensions frozen at £1,073,100 until April 2026. No changes to annual allowance, money purchase annual allowance or tapered annual allowance figures or rules.

• • Capital gains tax annual exempt amount frozen at £12,300 until April 2026. No change to the tax rates for CGT.

• • Inheritance nil rate band frozen at £325,000 and residence nil rate band at £175,000 until April 2026 (and the residence nil rate band taper threshold remains at £2million until April 2026).

• • ISA subscription limit remains at £20,000 in 2021/22 and the Junior ISA and Child Trust Fund subscription limits remain at £9,000.

• • Corporation tax: In 2023, the main corporation tax rate will increase to 25%, but for companies with profits of no more than £50,000 the rate will remain at 19%. There will be a tapering of the rate for companies with profits over £50,000 but less than £250,000 so only companies with profits above £250,000 will suffer the full 25% rate.

• • Fuel duty and alcohol duties are frozen.

• • Coronavirus Job Support Scheme extended to September 2021 across the UK (employer contribution of 10% required in July and 20% in August and September).

• • Self Employment Income Support Scheme (SEISS) extended to September 2021 across UK, with those who filed a tax return in 2019/20 now being able to claim for the first time.

• • Stamp Duty Land Tax (SDLT) temporary cut in England and Northern Ireland extended until September 2021. The £500,000 nil rate band will be extended until 30 June 2021 then it will be set at £250,000 until 30 September 2021, returning to its standard level of £125,000 on 1 October 2021.

• New mortgage guarantee scheme to enable all UK homebuyers to secure a 95% mortgage on properties up to £600,000 – only a 5% deposit needed.

We’re often asked how best to extract profits from a business. Whilst additional options apply when retirement is being considered, for an ongoing business there are three main options; salary/bonus; dividends; pension contributions.

Whilst the best option will always depend on personal preference the interaction of the 4 main taxes needs to be considered. Additional considerations apply for pension allowances.

Corporation tax

Salary and pension contributions should be classed as allowable business expenses. They will reduce the amount of corporation tax payable. Dividends are not a business expense and will be subject to corporation tax and hence are paid from profits after corporation tax of 19% has been deducted.

NI contributions

National Insurance (NI) contributions are paid on an employee’s salary or bonus. The rates are 13.8% employer NI; 12% employee NI on salary below the upper earnings limit and a further 2% above the limit.

Income tax

Salary will be subject to the client’s marginal rates of income tax. Should you be earning at or around £100,000 then paying extra salary could be much less desirable as your personal allowance is tapered away for gross income above £100,000.

The same is true of dividends although the client may also have access to the dividend allowance of £2,000. Higher rate tax for dividends is at 32.5%

Pension contributions are not taxed immediately. They will eventually be subject to income tax at your marginal rate but 25% should be paid tax-free. In retirement, it may be the case that the pension income is taxed at a lower rate. Also bear in mind that taking flexible income from a pension limits future pension contributions to just £4,000 pa.

Inheritance Tax (IHT)

Payments made to pensions should remain outside your estate for IHT purposes. If you already have an IHT issue and don’t need the income, taking dividends or salary just to invest will only add to the issue.

Annual Allowance (AA) and Lifetime Allowance (LTA)

The effect of both allowances always needs to be considered when adding to a pension but should not necessarily prevent a contribution being paid.

Access

There’s no point extracting money from your business but then being unable to spend it if you need to do so. You can’t currently access pension funds if under the age of 55. This takes us back to personal need and why even if the numbers favour one route it needs to be right for you.

Usually, the best route to take will be a combination of all three elements, salary, dividend and pension contribution designed to suit your personal circumstances. You should always take advice before taking action. This article is for guidance only and should not be taken as personal advice.

The example below assumes a company with £40,000 to distribute. The individual receiving the payment already has income above the higher rate band and has used the dividend allowance, but this payment will fall below £100,000 total taxable income.

*assuming income tax rates remain the same, 25% tax-free cash is taken and residual taxed at 40%

In 1796 the world’s first vaccine was developed; the smallpox vaccine. Almost two centuries later, in 1980, smallpox had been eradicated completely from the Earth. Before Autumn 2019 there were no scientists studying COVID-19, and yet in 10 short months, a vaccine was developed – the 21st century equivalent of putting a man on the moon.

Perhaps what is even more remarkable is the technology that made this possible. It took only two days to sequence the novel Coronavirus, and Moderna just two days further to translate this into an mRNA molecule to produce a vaccine.

mRNA is a small piece of genetic material, the intermediate step between DNA and protein. Calculating the exact chemical sequence of a pathogen’s mRNA allows for an entirely innovative and novel approach to vaccination. Where conventional vaccines rely on a dead or weakened form of a pathogen, an effective but slow method, mRNA vaccines allow replication of the protein fingerprint of a virus using this mRNA sequence. This means vaccines can be made safer, faster, and even cheaper.

The COVID-19 virus has been evolving throughout the pandemic and it has been expected that vaccines would need to be upgraded to better match the dominant variants, much like the seasonal flu vaccine which is reviewed annually. Research is already taking place into making the existing vaccination process more effective, whether through booster vaccines or modifications to existing vaccines.

Already, Moderna is launching a trial of a vaccine to tackle the strain that has emerged in South Africa. This is made possible as the RNA technology can be quickly adapted for new variants, and where much of the development time for the initial vaccine was due to clinical trials, it is hoped that any booster vaccination could be expediated through this process given only small modifications would be needed to the existing vaccine.

This year still remains uncertain, but human ingenuity provides us all with optimism that we are able to overcome the monumental challenges facing humanity together. What was unfathomable a century ago, has become today’s reality. Hopefully better days will be with us soon.

Following Prime Minister Boris Johnson’s announcement of a third national lockdown for England on Monday, Chancellor Rishi Sunak, has announced further one-off ‘top-up’ grants for the retail, hospitality, and leisure sectors. The aim is to help keep such businesses afloat during their closure until at least mid-February, at which time the latest restrictions are to be reviewed. Businesses which are legally required to close, and which cannot operate effectively remotely, are eligible for a grant of up to £9,000 per property.

The Detail

Closed business in the relevant sectors will be eligible for the following:

Businesses with a rateable value of up to £15,000 – £4,000 grant
Businesses with a rateable value of between £15,000 and £51,000 – £6,000 grant
Businesses with a rateable value of over £51,000 – £9,000 grant

The additional grants do not have to be repaid and will run alongside existing business support, including the Furlough Scheme which has been extended until the end of April.

The Government has also made available a discretionary fund of £594 million to support other impacted businesses that are not eligible for the grants. Such businesses should apply to their Local Authorities.

As business support is a ‘devolved policy’, the devolved Government administrations will receive additional funding in respect of the grants, as follows:

Scottish Government – £375 million
Welsh Government – £227 million
Northern Ireland Executive – £127 million

Sunak has confirmed that the possible extension of government support packages is to be reviewed in the Budget on 3rd March.

Response

As could be expected, the overall response to the above measures has been mixed. Whilst additional support has been largely welcomed, the director of business group CBI (Confederation of British Industries), Tony Danker, has warned that leaving consideration of further support packages until the March Budget may be too late for many firms. Furthermore, the director-general of BCC (British Chambers of Commerce), Adam Marshall, has expressed concern that smaller firms “will be left struggling to see how this new top-up grant will help them out of their cashflow problems”. Whilst the measures have been described as a lifeline by FSB (The Federation of Small Businesses) chair Mike Cherry, he also deemed them to “not go far enough to match the scale of the crisis that small firms are facing”.

With Christmas almost here, there is less festivity in the air than usual and it’s fair to say that 2020 has been a challenging year for everyone. Unfortunately, circumstances don’t look like improving just yet, but we should take this time to reflect on a historic year.

At Eldon, we have been extremely fortunate to have managed to continue with our service to the same high standards that we set ourselves, having not missed a client review meeting during the year. Moving to home working for the team was completed in a short space of time, so we take our hats off to Kevin for successfully implementing this so urgently in March.

It seems a lifetime ago now given everything that has occurred since, but we also said goodbye to Jan when she retired earlier in 2020. In addition, we also welcomed Natasha to the team this year and look forward to watching her career develop at Eldon.

Although challenging, we feel that some changes made to our working patterns may well remain over the long term. This has provided an improved work/life balance for our colleagues whilst maintaining our service to clients and will in future offer more varied options to meet.

Office Hours

The office will close on Christmas Eve at lunchtime, reopening again on 4th January 2021. If you have any urgent queries over the period, please email them to enquiries@eldonfinancial.co.uk and we will ensure that you receive a response.

We hope that 2021 sees some light at the end of the tunnel for us all and that we can start to welcome clients back to the office when appropriate.

We wish everyone the best for Christmas and the New Year and hope you all stay safe.

In 2019, the Court of Appeal found that changes made to firefighters’ pensions were discriminatory on the grounds of age, with the government later confirming that this ruling applied to all public sector schemes (Teachers, NHS, Civil Service etc).

The issues relate to public sector pension reforms in 2015, where members closer to normal retirement age were allowed to remain in the old pension schemes, whereas younger members were moved to new CARE (career average) schemes with less generous pensions.

The government has taken steps to remedy the situation, with transitional protections being offered to all members of Public sector pension schemes who were in service on or before 31 March 2012 and on or after 1 April 2015. This includes members who are currently active, deferred or retired.

Members will essentially be given a choice of either the old scheme benefits or the 2015 scheme benefits during the remedy period, which is 1 April 2015 to 31 March 2022. Then from 1 April 2022, all members will only accrue benefits in the 2015 schemes.

This could have implications for Annual Allowance and Lifetime Allowance calculations, meaning recalculations for some members will need to take place as a result.

The consultation on the proposed remedy and whether any decision made by the member
should be an immediate or deferred choice has recently closed, with the outcome yet to be published.

If you were a member of a Public Sector pension scheme during these dates, it is advisable, for the time being, to retain paperwork from April 2015 onwards including:

– All Self Assessment returns
– P60s
– Documents relating to any private pension schemes
– Annual Pension Statements relating to both public and private pensions schemes

Rishi Sunak revealed his Spending Review on Wednesday and indicated initial steps to help fund the borrowing undertaken this year.

One of the biggest changes to be announced was that the use of the Retail Price Index (RPI) is to change to Consumer Price Index including Housing costs (CPIH). To the relief of many, however, Rishi has postponed this change until February 2030.

RPI has been dubbed an inaccurate estimate of price inflation since 2013. CPIH has, on average, been lower than RPI by around 0.8% pa.

The change will help the government save an estimated £2bn per year in interest payments on index-linked gilts. This is one source of borrowing used to help the economy in this global pandemic.

What does it mean for you?

Pensioners

State Pension will not be affected as the State Pension is currently increased by a ‘triple lock’ method which does not include RPI.

Other occupational pensions that increase in line with RPI will receive lower increases each year due to CPIH normally being lower than RPI.

Bondholders

Unfortunately those who have already purchased index-linked gilts which contain a link to RPI will not be compensated in any way. For these, the change will result in lower interest rates and a lower trading value of the bond.

However, some bond values have risen on the back of this news due the original proposal last year from the Chancellor’s predecessor stating the change may come as early as 2025.

Younger generation

The younger generation will benefit on a range of savings. These include Student Loan Repayments as the interest will now be linked to a lower rate.

General

Any rail users or people holding mobile phone contracts will also see a benefit as the price rises of these are normally linked to RPI.

In conclusion, this change could be considered a less direct way than some to begin the repayment of some of the debt accumulated by the UK government throughout the pandemic. The main alternative would be significant increases to taxes. We may still see this but probably not until the economy begins to recover.

We are delighted to announce that we have, once again, made it onto the Citywire Top 100 list – one of only four firms to do so every year since its outset in 2012!

Collated by the New Model Adviser publication, the list showcases the top 100 financial planning and wealth management firms across the UK each year. Firms are surveyed and analysed on a multitude of areas, spanning investment philosophy, training, fees, and client education, to name but a few.

Ultimately, the list aims to highlight and celebrate the best of the professional financial planning community, and we are proud to be considered as such. As always, we are dedicated to building and providing the highest level service for our clients.

Earlier this year, the Chancellor called for a review of Capital Gains Tax (CGT), which will be undertaken by the Office for Tax Simplification (OTS), specifically focussing on aspects of CGT in relation to individuals and small businesses. The review is to cover:

• Overall scope of the tax and the various rates of CGT that apply.
• The reliefs, exemptions and allowances which can apply, and the treatment of losses.
• The annual exempt amount and its interactions with other reliefs.
• The position of individuals, partnerships and estates in administration.
• The position of unincorporated businesses and stand-alone owner-managed trading or investment companies (including the setting up, selling or winding up of such businesses or companies).
• How the CGT rules affect taxpayers’ investment decisions.
• Interactions with other taxes such as Income Tax, Capital Allowances, Stamp Duty Land (SDLT) Inheritance Tax (IHT).

It is therefore possible that the CGT landscape could change in the near future. Given the previous reduction to CGT rates in 2016, it is unlikely that the rates will reduce further.

The review is currently ongoing, with the deadline for providing the OTS with detailed comments on the above areas already having passed on 12th October. A date for the publication of the findings has not been set, however we will be keeping an eye out for the report when it is published.

The report will only provide recommendations for change and simplification of CGT. Any recommendations are not binding and must first pass through Parliament, although they will be considered in depth.