In the Budget one could argue that the individual remained unscathed. Even down to the usual popular concern as to whether the fuel and drinks duties would rise. They didn’t.

The Chancellor’s focus was on business and the economy – as the furlough scheme remained, help extended to the self-employed, business grants made available to the hospitality and service sector, corporation tax held – for two years anyway – and discounted business rates held.

But while personal finance taxes didn’t rise nor did allowances and this may have implications – for lower earners and for higher ones.

While the message pre-Budget was to take advantage of what allowances there are available before the Budget, while savers and investors may have a reprieve the message stands not to leave it too long to make the most of any tax reliefs available.

A brief re-cap of the key personal finance announcements are that:

  • Income tax, Vat and national insurance levels stay the same;
  • The personal allowance stays at £12,750;
  • The higher rate income tax threshold stays at £50,270;
  • ISA allowance stays at £20,000;
  • Junior ISA and Child Trust Fund allowance stays at £9,000;
  • The pensions lifetime allowance stays at £1,073,100 until April 2026;
  • Capital Gains Tax allowance stays at £12,300 for individuals and £6,150 for settlements trustees;
  • Inheritance tax levels remain unchanged: the nil-rate band at £325,000, the residence nil-rate band at £175,000, and the residence nil-rate band taper start at £2m; estates allowance stays at up to £500,000 and surviving spouse or civil partners allowance of up to £1m before an IHT liability remains;
  • The no residential stamp duty land tax nil-rate band of £500,000 remains till June (in England and Northern Ireland) until 30 June 2021, when it will drop to £250,000 till 30 September 2021 and then to £125,000;
  • A mortgage guarantee scheme was announced which from April will provide a guarantee to lenders who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000. This on new mortgages up to 31 December 2022.

However, the Treasury has announced the it will be releasing a series of consultations on 23 March, aimed at simplifying taxes. No further information was given at the time but sources suggest it could include some of the Office of Tax Simplification proposals on CGT and IHT and changes to pension tax relief. Before the Budget there were mutterings of aligning capital gains tax and income tax rates, a new wealth tax or the scrapping of higher rate relief on pension contributions. Who is to say these are not still on the cards?

“The Chancellor did not come forward with plans outlined by the Office of Tax Simplification (OTS) to align capital gains tax rates with income tax rates,” says Kay Ingram, director of public policy at financial planners LEBC. “This would have doubled the tax bill for most taxpayers realising a capital gain or making a gift of an asset which had grown in value.  The OTS also wanted to slash the tax-free allowance for gains to around £3,000 and scrap the uplift on death which removes the gain from tax.”

The nudges, if you are considering ISA or pension investments or gifting or releasing assets, to not delay too long, continue. Experts raise the concern that in actuality this Budget will cost the individual over the coming years.

Jason Hollands, managing director business development and communications at Tilney Investment Management said: “The next few years will see the burden of tax on individuals rise quietly by stealth while businesses will see a big hike in corporation tax in April 2023 from 19% to 25%, albeit at a level which will remain internationally competitive. In many ways this Budget marks a turning point from the Cameron years, which saw corporation tax rates trend downwards and the annual personal allowance glide upwards.

“Of course, all these measures will mean that more and more people and people will get progressively drawn into paying higher taxes over time, increasing the need for financial planning or tax advice.
“For now, it would be wise to make use of the various allowances available, while you can. Do consider shifting shares and investments into the tax-efficient embrace of Individual Savings Accounts – a process known as Bed and ISA – and contributing to pensions while the currently generous regime of reliefs for higher rate tax-payers remains in place.”

Income tax allowances

Regarding the personal allowances: that personal income tax stays at £12,750 and the higher rate income tax threshold stays at £50,270, it will be as wages rise (let us hope) that the problems arise.

Nigel Hatt, pensions specialist at Tilney, says: “Keeping these two thresholds on hold rather than raising them would mean more people are paying taxes as wages rise. It is forecast that circa 800,000 people who would not otherwise pay income tax will become tax payers before the next General Election is due with the same number becoming higher rate tax payers on a chunk of their income who but for the stealth tax would have remained basic rate tax payers.”

Again, the incentive to make tax efficient savings are to be focused on.

“Where pension contributions are concerned however this stealth tax could be perceived as an advantage if a pay rise does not come around this year,” says Hatt. “Take a client who earns £100,000 and wants to make a single contribution of £50,000, using their £40,000 allowance and £10,000 carried forward, the whole of that contribution will attract higher rate tax relief. If the £50,000 threshold were increased to say £51,000 only £49,000 of that contribution would attract higher rate tax relief albeit the whole contribution will attract basic rate tax relief.

“Individuals earning between £60,000 and £100,000 are likely to pay £680 more in tax over a four-year period beginning from the 21/22 tax year (increments of £68 pa). This assumes the CPI rate remains at 0.5% pa.”


It is the freezing of the Lifetime Allowance that has focused most commentators. Moira O’Neill, head of personal finance, interactive investor, said: “The pension lifetime allowance freeze, if coupled with inflation taking off over the next few years, could seriously result in a comfortable retirement income from a £1m pot turning into something that is much less comfortable. It still feels completely wrong that we penalise successful Sipp investors who had the good sense to start pension contributions from a young age with this artificial limit.”

It is the case that the freeze won’t hit the majority but nevertheless it sends out a message which could also freeze confidence in pension saving.

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA) said: “Given the pressure on the public finances it is not surprising that the Government has chosen to freeze the lifetime allowance. From the Treasury’s perspective, it will raise about £300m per year by 2025-26.

“About 90% of savers will be unaffected so most people can go on saving in their workplace pension without worrying about the rule change. However, the freeze will affect about 10% of savers, usually those on higher salaries with a lot of pension savings, such as senior doctors; it will create extra costs for pension schemes; and piecemeal changes like this are unhelpful in sustaining confidence in pension saving.

“Each year the allowance doesn’t keep pace with inflation is a step closer to LTA charges affecting ordinary pension savers, says John Tait, Retirement Advice Specialist at Standard Life, adding that while a pension pot of £1m may feel like a significant sum of money it has to last throughout retirement, and more and more are saving in excess of this into their pension. For example, a £1million pot will give you an annual income of around £32,000 before tax assuming withdrawals at a level of 3%. So, in reality, this isn’t something that could only affect the highest of earners.

“The first thing is don’t panic, good planning will help minimize the impact of the LTA freeze on your retirement finances. An adviser will be able to help you consider what it might mean for you, thinking about the LTA alongside other important considerations, like the income tax you may pay on pension withdrawals, or the inheritance tax your estate may have to pay if you take funds from your pension and don’t spend them.”

Sean Jones, financial planner at James Hambro & Partners says: “The Lifetime Allowance has been frozen at £1,073,100 until April 2026. This will impose an unnecessarily complex tax charge on thousands of people in the coming years. It won’t just hit the super-rich. It’s going to affect many ordinary people who’ve worked for a long time in skilled jobs with final salary pension schemes, including teachers and civil servants.”

When will I breach the Lifetime Allowance if it remains frozen and I make no more pension contributions?

How much in your pension today3% expected annual return5% expected annual return7% expected annual return
£500,00025 years 11 months15 years 8 months11 years 4 months
£600,00019 years 9 months11 years 11 months8 years 8 months
£700,00014 years 6 months8 years 10 months6 years 4 months
£800,00010 years 0 months6 years 1 month4 years 5 months
£900,0006 years 0 months3 years 8 months2 years 8 months
£1000,0002 years 5 months1 year 6 months1 year 1 month

Source: James Hambro & Partners


As the other key mainstream tax efficient saving vehicle, while at least the allowance for saving into an ISA remains the same, this also could be seen as a disappointment.

“The ISA allowance is frozen at £20,000 which may feel generous, but bear in mind that it has been at this level since 2017,” says O’Neill. “If it had risen in line with inflation it would now be worth £21,516.42, according to the Bank of England’s inflation calculator.”

Similarly, the freeze on the Capital Gains Tax allowance is a break from what we have been used to and will have savings implications.

“The Capital Gains Tax allowance has risen progressively from £5,000 in 1990 to £12,300 in 2020,” O’Neill points out. “Even going back to 1980, when it was £3,000, freezing it at the same level for 5 years is unprecedented.

“Every year we encourage investors to use as much as they can of their ISA allowance by 5 April or lose it forever. This year the same advice feels much more important because the potent combination of a freeze in ISAs and CGT allowances, makes it essential that investors shelter their investments from tax.”

As part of an overall retirement savings pot building exercise don’t defer advises O’Neill.

“For those nearing the frozen lifetime allowance on pensions (or who think they may eventually hit that limit), maxing your ISA is essential. ISAs give the flexibility to draw income earlier than 55 – and to plug an income gap if your retirement age has moved higher. And although they don’t benefit from upfront income tax relief, you don’t pay income tax when you draw the money out.

“But with Easter weekend effectively bringing ISA contribution deadlines forward, investors may have to move earlier to fill their allowance.”

The inflation impact of frozen allowances

Kay Ingram says: “The freezing of tax allowances for income tax, capital gains, inheritance tax and pensions savings until 2026 may not matter much in the short term as inflation is currently low at 0.7%. Yet if the economy rebounds, economists expect it to rise rapidly. “What that means for taxpayers is: –

  • Every year more tax will be due from rising incomes;
  • Gains made on taxable investments will not be inflation protected;
  • More estates will pay more tax, and
  • The amount which can be tax sheltered in a pension will fall in real terms.”

The impact of a 2% inflation rate, which is the Bank of England’s target rate, would reduce the value of the frozen allowances as follows:

Tax Allowance Allowance 2021 £ Allowance 2026 after inflation adjusted @ 2% £
Zero rate income tax12,57011,384
40% income tax threshold 50,27045,529
Capital gains allowance 12,30011,140
Inheritance Tax Allowance 325,000294,352
Pension Savings Allowance 1,073,100971,906

These figures show what lies beneath – allowances may not have gone down but the benefits from them may. Last word to George Goward, director at George Square Financial Management: “We continue to fear that there will be action taken on pensions tax relief for higher earners in the years ahead. We also believe it is likely that the ISA allowance will not continue to enjoy the rises it has seen in recent years. With this in mind, it has never been more important to make use of your tax-free allowances when you can and ensure you take good financial planning advice to mitigate the effect of any of the tax rises that come in future years.”

Further reading: Pension versus ISA? Which is best for you?