Spring Budget 2021: what will it include?

It’s hard to believe Rishi Sunak has only been in office for around a year, given what the Chancellor has had on his plate over the last 12 months.

Sunak succeeded Sajid Javid as Chancellor on 13 February 2020, five weeks before England was plunged into the first national COVID-19 lockdown.

Since then he has delivered one Budget and two financial statements, while public spending in the first nine months of 2020/21 passed £271bn.

The Office for Budget Responsibility predicts that figure will soar to around £394bn by the end of March 2021. That forecast may even rise further.

The Conservatives pledged not to raise the rates of income tax, national insurance contributions and VAT in their 2019 election manifesto.

That means the Chancellor has little room for manoeuvre before he delivers his second Budget speech on 3 March 2021.

One train of thought suggests now is not the time for tax rises, with the UK in the midst of a recession and severe lockdown restrictions.

Another suggestion is that the deficit is so high, Sunak simply cannot afford to kick the can down the road. Here’s what might be in store.

Corporation tax

The Chancellor could be heading for a further clash with directors of limited companies, most of whom are excluded from coronavirus support.

Sunak is believed to be considering raising the UK’s main rate of corporation tax from 19% to possibly as high as 24%.

The Financial Times reported that each percentage point increase would raise around £3.4bn a year for the Treasury.

A 5% increase could net the Treasury an extra £17bn a year, but companies argue it would be wrong to do this at a time of economic uncertainty.

Proportional property tax

With the stamp duty land tax holiday due to expire on 31 March 2021, campaigners hoping for an extension look set for disappointment.

Speculation is growing that Sunak could use his Spring Budget to abolish stamp duty and council tax and replace it with a new property tax.

This might arrive in the form of a proportional property tax – a 0.48% levy homeowners would have to pay each year on the value of their property.

For those owning more than one residential property, such as landlords, the tax would apply on each property they own.

Conservative MPs suggest the levy would be split, with the Treasury taking 0.16% and 0.32% going to the local authority.

Capital gains tax

Back in the autumn, the Office for Tax Simplification (OTS) published a report recommending significant changes to capital gains tax.

The OTS said harmonising capital gains tax rates with income tax rates could raise an extra £14 billion a year for the Treasury.

Should the Treasury adopt this measure, people who own second homes or assets not held in tax-free wrappers would pick up most of the bill.
Other proposals include slashing the £12,300 annual capital gains tax-free allowance and replacing it so that it only covers asset price increases that are equivalent to inflation.

Income tax thresholds

Buried in the smallprint of the most recent Spending Review was an increase to the personal allowance and the higher-rate threshold.

This will be in line with the September Consumer Prices Index (CPI) figure of 0.5%.

That should ensure the personal allowance rises to around £12,562, although the Treasury is likely to round that up to £12,570.

Above that threshold, the basic-rate of income tax will be charged at 20% on income of up to around £50,250 in 2021/22.

The September 2020 CPI figure will also determine the 2021/22 National Insurance limits and thresholds, plus Class 2 and Class 3 contributions.

Keep an eye out for our Spring Budget 2021 report.

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