Budget for Individuals

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As an individual, how will the Chancellor's Budget and Spending Review 2021 impact you? We've broken the detail down as follows:

Income tax rates & thresholds

Personal Allowance, Dividend Allowance and Savings Allowance

Unincorporated businesses

Income tax rates & thresholds

No changes have been announced to the income tax bands or the income tax rates. The savings rates also remain the same and this is expected, as in March a freeze to rates and thresholds until 2026 was announced.

As previously announced in September 2021, the rate of income tax applicable to dividend income will increase for 2022/23 tax year by 1.25%.

Dividend rates	Tax year 2021/22	Tax year 2022/23
Dividend ordinary rate	7.5%	8.75%
Dividend upper rate	32.5%	33.75%
Dividend additional rate	38.1%	39.35%

These changes, which apply UK wide, are a result of the Health and Social Care levy being introduced and are to ensure that investment income suffers this levy as well as earned income and pension income.

Please note that for Scottish taxpayers, the Scottish Budget will be held on 9 December and the Scottish Parliament will set the income tax rates and thresholds on non-savings and non-dividend income.

Personal Allowance, Dividend Allowance and Savings Allowance

This remains unchanged at £12,570 of tax free allowance for individuals with an income up to £100,000, at which point it is reduced by £1 for every £2 of income over this limit. The tax free personal allowance, as announced in March 2021, will remain frozen until 2026.

The dividend allowance remains unchanged at a 0% rate on up to £2,000 of dividend income, with the personal savings allowance also remaining unchanged at £1,000 charged at a 0% rate for basic rate taxpayers and £500 at a 0% rate for higher rate taxpayers.

Universal Credit

Universal Credit will be amended to cut the universal credit "taper", with an 8p reduction; meaning that instead of losing 63p of benefit for every £1 earned above the work allowance, the amount will be reduced to 55p. The Chancellor also increased the amount people can earn before starting to lose the benefit by £500 a year. The new rate will be introduced by 1 December.

National Insurance

In the tax year 2022 to 2023 only, the new Health and Social Care Levy will be delivered through a temporary 1.25% increase in the main and additional rates of Class 1 and Class 4 National Insurance Contributions. After April 2023 the 1.25% Health and Social Care Levy will be formally separated out from National Insurance and the National Insurance rates will return to their 2021/22 levels with the tax being collected separately.

This levy will see an additional tax burden applying for employees, employers and self employed alike, and also applies if working and of pensionable age.

Also announced at Autumn Budget 2021, the Government will use the CPI figure of 3.1% as the basis for uprating National Insurance limits and thresholds, and the rates of Class 2 and 3 contributions for 2022 to 2023. This excludes the Upper Earnings Limit for Class 1 purposes and Upper Profits Limit for Class 4 purposes, these thresholds will be maintained at the 2021/22 level and will remain aligned with the income tax higher rate threshold until April 2026.

The impact of freezing allowances and thresholds is that, over time, more tax and NIC will be paid as people's income increases.

Capital Gains Tax (CGT)

No changes were announced to Capital Gains Tax rates or reliefs.

The relatively new 30-day CGT reporting for sales of residential property in the UK will be revised to see the reporting deadline for residents reporting and paying CGT after selling UK residential property increased from 30 days after completion to 60 days. This is welcome. For non-UK residents disposing of property in the UK the deadline will also increase to 60 days.

Inheritance Tax

No changes were announced to Inheritance Tax in the Budget, despite various tabloid headlines.

Making Tax Digital

Making Tax Digital is coming for Income Tax self-assessment, but it was announced in September 2021 that this will be delayed until 6 April 2024 to give HMRC and the agents and software developers more time to prepare for quarterly reporting of income. General Partnerships will not be required to join the system until April 2025.

Along with the new Making Tax Digital system will come reform of the penalty system for late submission and late payment of tax; we await more detail on what this will look like.

Unincorporated businesses

Basis period reform

The Government also announced that basis period reform will go ahead. This will see the Government legislating in Finance Bill 2021-22 to simplify the basis period rules for the self-employed and partners.

The draft legislation already published in July 2021 will be revised to incorporate suggestions arising from the consultation, including more flexible use of overlap relief previously accrued and transitional provisions to mitigate the impact of essentially taxing all business up to the tax year.

There will also be a delay to the introduction of the new rules until 6 April 2024. The Government’s response document on the consultation will come out on 4 November, and we will have more information on what is proposed at that time.

Capital Allowances

Positively, the Chancellor announced an extension to the Annual Investment Allowance of the temporary £1million level to 31 March 2023. This was expected to decrease to £200,000 on 1 January 2022. Given that unincorporated businesses cannot benefit from the Super Deduction announced in March 2021, the Annual Investment Allowance being maintained at the £1m level is welcome news.