How the Autumn Budget 2021 will affect your financial planning

Autumn Budget financial planning

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Now the dust has settled on the Autumn budget I have been able to reflect on how it might affect your ongoing financial planning.

In reality this year’s Autumn budget announcement actually started in September when the Prime Minister announced the health and social care levy and the change for one year in the triple lock for State Pensions.

The Triple Lock

The triple lock will increase by 3.1% in 2022/23 in line with the Consumer Price Index (as measured at the end of September 2021) and not the national average wage increase.

If you are on a full State Pension (35 years of contributions) this is a rise of £288.60 from £9,339.20 to £9,627.80 a year. The State Pension is paid tax free, but it is taxable if your total income is higher than your personal tax allowances which start at £12,570.

Read more about the Triple Lock in my previous article here.

Health and Social Care Levy

The health and social care levy has a far wider effect on what working people will earn as it will effectively increase National Insurance contributions for employers and employees.

  • National Insurance Rates will rise by 1.25% percentage points for employers and employees earning over £8,840
  • National Insurance Rates will rise by 1.25% percentage points on classes 1 and 4 for the self-employed earning over £9,568

There is no National Insurance payable on Pension income, so if you are already retired this won’t affect you.

Read more about the Health and Social Care Levy in my previous article here.

Personal tax rates

We already knew from previous announcements that the personal tax rates are frozen until 5 April 2026. This means that most retired people will pay the same amount of tax next year assuming their income remains the same. Due to the NI / Health and Social Care Levy above the majority of working people will see an increase, depending on their salary.

Child benefit rates and levies are unchanged as are all the income tax brackets.

Taxation of dividends

The Chancellor announced an increase in dividend tax which will hit investors as well as company owners.

If you run your own business and pay yourself dividends this will affect you, as well as those holding investments outside of stocks and shares ISAs.

How much tax you will pay will depend on the dividends you earn from your portfolios.

  • Dividend tax rates on profits from share ownership will increase by 1.25%
  • The £2,000 dividend allowance will remain
  • The rate for Basic Rate Basic Rate Taxpayers will rise from 7.5% to 8.75%
  • The rate for Higher Rate Taxpayers will rise from 32.5% to 33.75%
  • The rate for Additional Rate Taxpayers will rise from 38.1% to 39.35%

We often see markets jump or fall significantly as a reaction to budget announcements after which they tend to settle down, however I am pleased to report they have remained fairly flat. This means that fund values have remained largely consistent.

As part of your financial planning we are always aiming to keep costs down and one of the best ways of doing this is to invest in tax efficient investments such as ISAs (£20,000 per annum) and Pensions as they offer some of the best tax breaks.

Personal Finance tax changes

This budget was light on personal finance announcements other than the living wage has risen from £8.91 to £9.50 per hour and anyone on Universal Credit will see an 8% reduction taper from 63p to 55p in every pound that they lose for working.

If you are a person that looks forward to fizzy Friday every week the cost of many alcoholic drinks is set to fall in an overhaul of alcohol duty based on the strength of each drink. I recently learnt that the government only started taxing alcohol in 1643 to pay for the civil war.

We all enjoy our holidays and it was announced that a change to Air Passenger Duty from April 2023 will see the cost of short haul flights reduce (Spain and Greece for example) with long haul flights over 5,500 miles to be more expensive. Fuel prices are currently at an 8 year high meaning that an anticipated rise in fuel duty was scraped. Missing from the budget was any mention of the steadily increasing energy bills. The Chancellor announced greater funding for electric car charging and train, tram, bus and cycle projects in England’s city regions.

There were no changes to pension tax relief or capital gains tax rates or allowances which is good news for your financial planning, so keeping making use of those allowances if you can.

If you have any questions about the impact of the Autumn Budget on your financial planning please get in touch with your Financial Adviser.

This content is for information purposes and should not be treated as advice. The value of an investment and the income from it could go down as well as up. You may not get back what you invest. Past performance is not a reliable indicator of future performance. The tax treatment depends on your individual circumstances and may be subject to change in future. All rates of tax and tax reliefs are based upon our current understanding of them but may be subject to change in the future. We recommend you seek competent professional advice before taking any action. The Financial Conduct Authority does not regulate tax advice.

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