UK Budget 2021: New measures on Inheritance tax, Corporation Tax, ATED and Stamp Duty.

“Whatever it takes”. These are the words with which the chancellor Rishi Sunak made his debut at the annual conference in which he announced the Budget 2021.

The drafting of the measures and its news have been strongly influenced by the impact of Covid-19 in the last year, as well as the urgent need to maintain the global power status even after the United Kingdom’s exit from the European Union. 

The major novelty of the Budget is the increase in the Corporation tax rate from 19% to 25% for companies with profits exceeding £50,000 per year from 2023.

Currently the Corporation Tax rate is 19% for all companies, regardless of turnover, making the UK attractive to foreign investors.

The aim of the budget is to recover tax revenues with the aim of maintaining an internationally competitive tax system.

Despite the increase in Corporation Tax rate to 25%, this would still remain the lowest rate in the G7 countries. Furthermore, to support the economic recovery, the increase will not take effect until 2023, allowing the companies involved to prepare well in advance for the increase.

Companies with turnover of £50,000 or less per year – that is, 70% of companies actively operating in the UK – will continue to be taxed at 19%. 

A proportional taxation is also introduced for those companies with profits between £50,000 and £250,000, so that only companies with turnover over £250,000 are effectively taxed at the rate of 25%.

At the same time, the aim of the measure is not to penalize the small businesses, which would be helped by a relatively low tax rate.

Another measure referred to in the Budget 2021 concerns the intention of keeping the £325,000 threshold of inheritance tax unchanged (IHT) until April 2026, keep the RNRB (tax-free threshold on residential property) at £175,000 and maintain the RNRB taper, starting at £2 million.

How does inheritance tax work in the UK?

The Inheritance Tax is the property tax, in particular referring to real estate, money, shares and land belonging to a deceased person, who’s standard rate is 40%.

Normally there is no inheritance tax to pay if the value of the property is less than £325,000 or if the property, even worth more than £325,000 is inherited by the spouse, civil partner, charity, or community amateur sports club. 

The transfer of ownership should also be communicated to HM Revenue and Customs if the value is below the £325,000 threshold.

The tax-free threshold of £325,000 can increase to £500,000 if the property is inherited by children or grandchildren.

It is also expected that for those properties introduced in IHT, the tax liability will be low compared to the value of the property.

Another news from the Budget 2021 is the relief of the Annual Tax on Enveloped Dwellings (ATED) and a 15% Stamp Duty Land Tax (SDLT) for certain qualified housing co-operatives.

These measures come into force on March 3rd, 2021. For land tax, relief may be required for land transactions where the date of entry into force of the transaction is on or subsequent to March 3rd, 2021.

For ATED, the relief will apply to taxable and effective periods after the 1st of April 2020, permitting eligible housing cooperatives that have already paid ATED for that period to claim a refund.

Rishi Sunak has also extended the threshold by which Stamp Duty is not required to be paid in England and Northern Ireland until the end of June 2021 and the tax relief will continue until the end of September.

The measure was temporarily introduced last July– and was due to expire in April 2021 (now June 2021) to help promote the purchase of properties during the pandemic. For the first £500,000 of the property’s purchase price no Stamp Duty is required to be paid, if the property is acquired as the main residence.

On Wednesday the 3rd of March, the Chancellor announced that the measure introduced in July 2020 had been extended until the 30th of June 2021. After that, the tax-free threshold will be reduced to £250,000 until the end of September, while it will return to £125,000 from October.

For further information on the new UK Budget 2021, contact us at info@well-tax.com or follow us on our website www.well-tax.com.

Author 

Domenico Santomasi