Autumn Budget 2021: very few changes for pensions and savings
27 October 2021 - Much of Chancellor Rishi Sunak’s Autumn Budget and Spending Review was public knowledge before he gave his speech today.
The good news – which included more funding for special education needs and family centres, a rise in the national living wage, and the scrapping of the public sector pay freeze – was laid out in detail in the national newspapers days ahead of the event itself.
There were a few small surprises: ‘sin’ products had a reprieve with a continuation of the fuel duty freeze, prosecco getting cheaper and no mention at all about cigarettes…
But what of our personal finances? Were the rumours about changes to the inheritance tax treatment of pensions and changes to capital gains tax correct?
It seems not. On what turned out to be a quiet day for personal finances, the final document revealed very little has changed.
Here, we summarise the changes to pensions and savings:
Pensions and savings
State Pension uprating – The earnings data series has been distorted by the pandemic. The government is therefore legislating to temporarily suspend the earnings element of the ‘Triple Lock’ used to uprate the State Pension and Pension Credit. Instead, for 2022-23 the new and basic State Pension, Pension Credit and survivors’ benefits in industrial death benefit will increase by the higher of CPI or 2.5%, protecting pensioners from higher costs of living and protecting taxpayers from the significant additional fiscal pressure created by the statistical anomaly.
Pensions tax relief administration: Top-up for low earners in Net Pay arrangements – In 2025-26 the government will introduce a system to make top-up payments in respect of contributions made in 2024-25 onwards directly to low-earning individuals saving in a pension scheme using a Net Pay Arrangement. These top-ups will help to better align outcomes with equivalent savers saving into pension schemes using Relief at Source. An estimated 1.2 million individuals could benefit by an average of £53 a year. A response to the Call for Evidence on pensions tax relief administration providing further details is also being published at the Budget and Spending Review.
Starting rate for savings tax band – The band of savings income that is subject to the 0% starting tax rate will remain at its current level of £5,000 for 2022-23.
Individual Savings Account (ISA) annual subscription limit – The adult ISA annual subscription limit for 2022-23 will be maintained at £20,000.
Junior ISA and Child Trust Fund annual subscription limit – The annual subscription limit for Junior ISAs and Child Trust Funds for 2022-23 will be maintained at £9,000.
Dividend rates – As announced on by the Prime Minister on 7 September 2021, legislation will be introduced in the Finance Bill 2021-22 to increase the rates of income tax applicable to dividend income by 1.25%. The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate. The changes will apply UK-wide and will take effect from 6 April 2022. In England, revenue from this increase will help to fund the health and social care settlement announced in September with the Barnett formula applying in the normal way. This change will ensure those with dividend income make a contribution in line with that made by employees and the self-employed on their earnings.
Capital Gains Tax (CGT): property payment window – From 27 October 2021 the deadline for residents to report and pay CGT after selling UK residential property will increase from 30 days after the completion date to 60 days. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 days to 60 days. This will ensure that taxpayers have sufficient time to report and pay CGT, as recommended by the Office of Tax Simplification. When mixed-use property is disposed of by UK residents, legislation will also clarify that the 60-day payment window will only apply to the residential element of the property gain.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and do not constitute financial advice.