Covid-19 has had an impact that has shaken the world to its core. However, it has also resulted in the highest levels of borrowing during peacetime. In order to cover some of these costs, you might not be aware that thresholds and allowances will remain at the current rates until April 2026.
Your Personal Allowance
For 2021/2022, your personal allowance has been increased by £70 to £12,570. However, this allowance will not change until April 2026.
Income Tax Rates and Bands
The basic rate band for the financial year 2021/2022 has increased to £37,700. In other words, an individual who earns more than their personal allowance will have to pay tax once their income exceeds £50,270. There will be no change until 2025/26.
Rate bands will remain unchanged as will the high rate threshold. Inflation will mean a higher level of income and higher rates of taxation for those who pay taxes with their increased incomes. Additional taxation is applicable if your income is over £150,000, and is a rate of 45%.
Annual Exempt Amount of Capital Gains Tax
Exemption amounts for capital gains tax will remain unchanged for 2021/22 at £12,300 per annum. Despite this, the government is considering options, so there might be changes.
Contributions under Class 1 National Insurance, as well as contributions under Class 4 National Insurance, are based on the rate of taxation where higher rates are applicable. In both cases, the amount is £50,270. Accordingly, this amounts to £967 per week or £4,189 per month for Class 1.
In 2021 and 2022, the nil rate band will remain at the current level of £325,000. Inheritance tax boundaries are more likely to be exceeded now that the threshold has been frozen.
Also, the current limit of £175,00 for the residence nil rate band (RNRB) will be maintained. Where the estate is more than £2 million, the RNRB is reduced by £1 for every £2 whereby the value of the estate surpasses £2 million.
Pension Lifetime Allowance
Pension savings tax relief is limited by the Pension Lifetime Allowance. When the lifetime allowance of pension savings exceeds the tax relief for pension savings, 25% is deducted where any excess is taken as a pension. Excess amounts will have a 55% tax charge where they are taken as a lump sum. This year, the lifetime allowance of £1,073,100 will remain unchanged through to 2025/26. Tax-relieved pension contributions for this year and the following four tax years will be unavailable to those who have pension savings or are close to this level.