What the Budget means for you – Jasmine Birtles

The Budget 2021 must have been one the most leaked in history. There wasn’t much Chancellor Rishi Sunak announced on 3^rd March that wasn’t in the news in the days leading up to it. However, we did learn a few things about the economy and something of the future for British businesses that are of interest to investors.

Highlights of the Budget

Briefly, we learned that the furlough scheme will be extended to September for those sectors that will continue to stay closed (entertainment, the arts, some sports) and that the self-employed will continue to be helped, with some newly self-employed finally being accepted into the furlough club. There will be no extra duty on fuel or any alcohol and the £20 weekly uplift for Universal Credit claimants will continue for another six months. The Chancellor announced several business projects planned for the North and Midlands together with ‘Free Ports’ around the country that will help to build and promote business in the country. We are also waiting for information (rates, terms etc) for the Government’s new ‘Green Bonds’ that will be run by NS&I to bring investment to environmental projects.

So far so generous. On the whole it was a giveaway Budget, as most of us expected given the extremely fragile state of our economy. However, there were a few stealth taxes quietly inserted into the mix too. For example, although the income tax threshold will rise a little next year (from £12,500 to £12,570 for the 20% rate and from £50,000 to £50,270 for the 40% rate), after that it will be frozen until 2026. This means that anyone who gets a pay rise in that time (and that’s likely to be most people) will end up paying more tax. In fact the Government expects to pull in around £8bn from this move alone.

What does this mean for investors?

For a start, it’s likely that investors will pay more tax going forward. If they take income from investments then the freeze on the income tax threshold could mean their overall tax bill goes up in the years up to 2025.

Capital Gains Tax rates (currently £12,300) will also be frozen from 2022-2026 which will mean that if you sell assets that have gone up in value in that time you will end up paying more tax.

Speaking of assets, anyone looking to buy or sell property will be pleased to know that the Stamp Duty holiday has been extended until 30^th June. This gives buyers and sellers extra time to complete transactions and should keep the price of properties buoyant into the summer. 

Another measure that should lift property prices is the announcement of a Government guarantee scheme to help buyers with just a 5% deposit get a home worth up to £600,000. There are currently very few 95% mortgages on the market but, as of next month, the scheme will open up opportunities for first-time buyers particularly. This is good news for them, of course, but it is also good news for property investors as this kind of government scheme usually ends up increasing the value of properties by increasing the number of people who can afford to borrow.

However, if all this investing in property and other assets means that you have more to leave to your family when you pass on, they may have to pay more inheritance tax (IHT) on your estate as the IHT rates will also be frozen from 2022-2026.

Taxing business

If you have a business, including an investment business such as a limited company that holds your property investments, then you could end up paying more corporation tax later on. Corporation tax on company profits will go up from 19% to 25% in 2023. The good news is, though, that small businesses with profits of up to £50,000 will still be taxed at 19% and Sunak claims that only the top 10% of companies will end up paying the higher rate.

Investment opportunities inland

The Chancellor announced a raft of investments in the North which may open up infrastructure investment opportunities for individuals and institutions.

For a start, Sunak announced new economic hubs in Darlington and Leeds. There were also business projects for Teesside, and a new ‘Treasury North’ campus in Darlington, creating 750 jobs. Teesside has also been chosen as the site of one of eight ‘Freeports’. These places will get funding to improve transport links, cheaper tariffs and lower taxes. The other freeports will be in Humber, Liverpool, East Midlands Airport, Felixstowe and Harwich, Plymouth, Solent and Thames. 

Also a National Infrastructure Bank is being set up in Leeds with an initial investment of £12 billion to invest in green projects.

The economic view going forward

If you’re someone who likes to invest in UK-based funds – such as an index-tracker that follows the FTSE100 – it can be helpful to have an idea of where the British economy is going. On that subject the Office for Budget Responsibility (OBR) consulted its runes and predicted that the economy would return to pre-lockdown levels by the middle of 2022, six months earlier than they had previously thought. They also forecast that the economy would grow this year by 4%, then by 7.3% in 2022, then 1.7%, 1.6% and 1.7% in the years up to 2025. 

The bad news, though, is that the UK has borrowed £355bn (equivalent of 17% of GDP) which is the highest amount since the Second World War. The total public spending bill is around £407bn. That’s a whole lot of cash for us to pay back going forward, and something we’ll likely hear much more about in Budgets to come. 

Jasmine Birtles is founder of MoneyMagpie.com and a TV and radio personality. 

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