Personal tax planning in 2021/22
If there’s one thing to take away from Spring Budget 2021, it’s taking charge of your personal finances is going to be increasingly important over the next five years. With the financial fallout from COVID-19 over the last year being the fiscal equivalent of fighting a war at more than £280 billion, we will be paying back that debt for many decades to come.
Income
How much income tax you pay this year will depend on where in the UK you live, with different thresholds and rates applying to taxpayers in Scotland.
Income tax bands & rates – England, N. Ireland & Wales
| Band | 2021/22 | Rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic-rate | Over £12,570 to £50,270 | 20% |
| Higher-rate* | Over £50,270 to £150,000 | 40% |
| Additional-rate* | Above £150,000 | 45% |
The UK-wide personal allowance, along with all income tax thresholds in England, Northern Ireland and Wales, has been frozen by Chancellor Rishi Sunak until April 2026. The income tax rates will also remain in place until the scheduled end of Parliament in 2024 in line with a Conservative manifesto pledge from 2019, which Sunak reiterated in last month’s Spring Budget.
Income tax bands & rates – Scotland
| Band | 2021/22 | Rate |
| Personal allowance | Up to £12,570 | 0% |
| Starter-rate | Over £12,570 to 14,667 | 19% |
| Basic-rate | Over £14,667 to £25,296 | 20% |
| Intermediate-rate | Over £25,296 to £43,662 | 21% |
| Higher-rate* | Over £43,662 to £150,000 | 41% |
| Top-rate* | Above £150,000 | 46% |
Dividends and Capital Gains
The dividends allowance remains at £2,000 for 2021/22, for the third year in a row. Factoring in the slight increase to the personal allowance in 2021/22, the maximum tax-free income you can receive through dividends is £14,570.
If you have any chargeable assets that you plan to sell and are worth more than you paid for them, your gain could be liable to capital gains tax. Assets that are sold in 2021/22 for more than £12,300 will be liable for capital gains tax. The rate of tax paid will depend on the type of asset sold and which marginal rate of income tax you pay, with different rates applying to basic-rate taxpayers and those in higher or additional-rate bands.
Pensions and Savings
Usually, the pensions lifetime allowance increases in line with that all-important CPI rate of inflation from the previous September. But for 2021/22 until April 2026, the lifetime allowance stays at £1,073,100. Those who have already started taking retirement income, and people who are in the final stages of their retirement savings strategy, need to be aware of this lifetime allowance and factor it into their planning.
The most you can save into your pension pot in 2021/22 – otherwise known as the annual pensions allowance – remains £40,000, although personal circumstances can mean the actual allowance is lower for a particular individual. You can contribute more by utilising any unused allowance from the previous three tax years.
ISAs remain tax-free up to an annual subscription value of £20,000, whether the income is from interest or investments. Types of ISA include cash, stocks and shares, innovative finance ISAs, lifetime ISAs, and junior ISAs for under-18s.
Inheritance Tax
It’s very much as business as usual with inheritance tax in 2021/22. Estates worth less than £325,000 will be tax-free, while the flat-rate of inheritance tax above this threshold remains at 40%.
Beyond 2020/21, future increases to the so-called family home allowance are due to be determined by the September CPI figure. The inheritance tax thresholds, however, are to be maintained at their existing levels until April 2026.