Changes to Personal Tax 2021

We work with a lot of clients, helping them with their personal taxes. There are many different ways to reduce their tax liabilities if they take full advantage of the various allowances.

Here is a summary of a few of the announcements that were made regarding personal tax in the Spring Budget announced in March 2021.

The personal allowance

The personal allowance was previously £12,500 in 2020/21.  Budget 2018 announced that the allowance would remain at the same level until 2020/21, and the statutory provision to increase the allowance annually by CPI was to be overridden. The Chancellor has confirmed that the personal allowance will increase by CPI (0.5%) for 2021/22 to £12,570.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So, there was no personal allowance for the previous tax year where adjusted net income exceeded £125,000. For 2021/22, there will be no personal allowance where adjusted net income exceeds £125,140.

The Chancellor announced that the personal allowance will be frozen at £12,570 for the tax years 2022/23 to 2025/26.

The marriage allowance

The marriage allowance permits certain couples, where neither pays tax at more than the basic rate, to transfer 10% of their personal allowance to their spouse or civil partner.

It’s important to note that the marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year.

The marriage allowance was first introduced for 2015/16, and there are couples who are entitled to claim but have not yet done so. It is possible to claim for all years back to 2016/17, where the entitlement conditions are met. The total tax saving for all years up until 2020/21 could be over £1,000. A claim for 2016/17 will need to be made by 5 April 2021.

Pensions lifetime allowance

The lifetime limit sets the maximum figure for tax-relieved savings that an individual can build up over their lifetime.

The legislation will be introduced to remove the annual link to the CPI increase for the next five years. This will maintain the standard Lifetime Allowance at £1,073,100 for tax years 2021/22 to 2025/26.

If you would like any advice about personal tax and how these allowances can affect the amount of tax you pay, then please do contact us.

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