10 ways the budget affects you
Chancellor Rishi Sunak announced the 2021 Budget on 3rd March, which he advised can help the UK economy following challenges brought about by the Covid-19 pandemic. The budget follows a statement confirming the continuation of the employee retention scheme and furlough for workers until September 2021. What does this mean for your finances, your income and your day-to-day living? Here are the 10 ways the UK 2021 budget can affect you.
1. What’s happened to Income Tax after the budget?
Income tax brackets will be raised across the UK, including Scotland, Wales and Northern Ireland. Personal Tax Allowance is set to rise by £70 in April 2021, to be frozen until April 2026. This takes the Personal Allowance from £12,500 to £12,570. We’ve broken down the bands in the table below. Please note, income tax bands are different if you live in Scotland.
|Band||Taxable income||Tax rate|
|Personal allowance||up to £12,570||0%|
|Basic rate||£12,571 to £50,270||20%|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
2. Will my take home pay change?
With the raised tax allowance giving you an extra £70 across the financial year, from April 2021 you may see a slight change to your take home pay.
For example if your gross pay is £35,000 you’ll get the standard Personal Allowance of £12,570. Meaning you’ll pay basic rate tax at 20% on £22,430 (£35,000 minus £12,570).
3. What are the changes to universal credit?
The lowest level of income to claim universal credit was suspended in November 2020. Therefore the universal tax credit is currently based on actual income, not minimum wage income, allowing for a more accurate credit claim. This change has been extended until August 2021. An additional £20 per week universal credit uplift, which was introduced last year, will continue for another six months until September 2021.
4. What’s the difference between the National Minimum Wage and National Living Wage, and has this been affected?
Before the budget, the National Minimum Wage protected pay levels for school leavers up to and including the age of 24. The National Living Wage ensured a level of pay from the age of 25. From April 1st 2021, this age threshold will change from 25 to 23. Below is a breakdown of the rates of National Minimum Wage by age bracket:
|23 and over||21 to 22||18 to 20||Under 18||Apprentice|
5. What’s a stamp duty holiday?
In July 2020, there was a temporary stamp duty holiday brought in to encourage house buying during the pandemic. This meant that home buyers did not have to pay stamp duty on the first £500,000 of the value of the property.
The Chancellor confirmed in the Budget that this stamp duty holiday will carry on until June 30th 2021. From then on, stamp duty will return at £250,000.
6. The Budget and borrowing: what can you expect from mortgages?
As with the stamp duty holiday, Chancellor Rishi Sunak has brought back support for 95% mortgages. Banks and building societies can offer mortgages with a 5% deposit, on repayment terms, not interest only mortgages. The mortgage guarantee scheme starts in April and will run until the end of 2022.
7. Fuel duty and road tax: what the budget means for motorists
While fuel duty and insurance premium tax remain unchanged, there has been a slight increase on Vehicle Excise Duty (VED), also known as Road Tax. This increase is in line with the Retail Price Index (RPI). This means a slight price increase (in line with inflation) for owners of cars, vans and motorbikes.For lorries and heavy goods vehicles, Vehicle Excise Duty will be frozen to offer support for haulage companies.
The Plug-in Car Grant (PiCG) will continue, which is a government scheme to offer a discount on buying an electric car (not a hybrid). The maximum available grant for cars is £2,500. You can get up to £350 (including VAT) off the cost of installing a charger at home through the Electric Vehicle Homecharge Scheme.
8. The cost of drinking and smoking
Usually, duty is applied to standard VAT rates on alcohol and sugary drinks. However, this increase has been frozen in the 2021 Budget. There are no further increases to the cost of smoking either, as tobacco product prices had already increased in November 2020.
9. What can you expect from the budget if you’re self-employed?
There is another SEISS (Self Employment Income Support Scheme) grant due to be available from May, following the previous grant that ends in April. Claims for the next grant must be made on or before 1st June 2021.
The grant is aimed at businesses with a turnover that has fallen below 30% or more, and business owners will be able to claim 80% of their average trading profits for a three month period. For businesses with a drop in turnover less than 30%, they will receive 30% of the average monthly trading profits over three months.
10. How does the budget affect your pension?
It was announced in the Budget that the pension lifetime allowance would be frozen until April 2026. This allowance is the amount of money that can be saved before being taxed. The current allowance is just over £1m. If your pension is above £1,073,100, you will have to pay tax on any money above this limit. The freeze is most likely to have an effect on higher earners paying larger amounts into their pensions.
Hopefully this article has provided some clarity to the 2021 Budget and don’t forget, Equifax has put together a handy interactive budget planner to help you get a clear picture of your outgoings.
This article was written on 27 April 2021; all information was correct at the time of writing.
For up-to-date information, regularly check the government’s Budget updates.
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