Tax changes and key dates for 2021

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Tax changes and key dates

April 5: Inheritance tax rules changes

By April 2021 married couples will be able to leave up to £1 million tax-free to their direct descendants.

The additional inheritance tax free ‘residence nil rate band’ will rise to £175,000. To qualify, a property must have been lived in at some point by the deceased, and be passed onto direct descendants, such as children and grandchildren.

The residence nil rate band is available on top of the existing inheritance tax nil rate band of £325,000, so that in 2020/21 an individual will potentially be able to leave £500,000 free of inheritance tax.

This is an important change for families with medium sized homes and savings, as they will now be able to pass on and benefit from their estates tax free.

April 6: Lifetime ISA charge relaxation ends

From April 6 you will be charged 25 per cent if you withdraw money from your lifetime ISA, for any reason other than buying a first home or to use it as your pension.

The government altered the Lifetime ISA rules to help those adversely affected by the coronavirus pandemic.

However this change is set to be reversed, so if you need to withdraw from your ISA you’ll need to do so before then.

April 6: Changes to wages and income tax

In his comprehensive spending review, Rishi Sunak confirmed that the National Living Wage will increase 2.2% to £8.91 from April and will become available to people aged 23 and above, down from the current age of 25.

Workers aged 21 and 22 will see their wages go up to £8.36, and 18 to 20 year olds pay will increase to £6.56.

It was also confirmed that the government will increase the 2021/22 personal allowance in line with the September Consumer Prices Index (CPI) measure of inflation. This figure stood at 0.5%. It will also apply to the higher rate threshold.

The increase of 0.5 per cent will make the allowance £12,570 for basic rate taxpayers and £50,270 for higher rate taxpayers.

April 6: Pension lifetime allowance (LTA) increases

Currently, pensioners have to pay tax on their pensions if it exceeds £1.073 million. From April this allowance will increase to £1.079 million, an increase of 0.5 per cent in line with inflation.

The LTA rises each year at the same rate as the consumer price index figure, and this means that savers will be entitled to an additional £1,450 in tax-free cash in 2021-22.

April 30 – End of the Furlough Scheme

The furlough scheme is set to come to an end on April 30 following the recent extension by Chancellor Rishi Sunak.

The government is currently continuing to contribute 80% towards wages, while employers will only be required to pay wages, National Insurance Contributions (NICS) and pensions for hours worked; and NICS and pensions for hours not worked.

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