Stay up to date

Blog

Spring Budget 2023

20th March 2023

Well, that was an interesting Budget! On the 15th March 2023, Jeremy Hunt stood up to deliver his second budget. Planned changes to pension legislation had been leaked, but the financial planning profession was still taken by surprise!

Here are the main points…

Pensions

The Lifetime allowance (LTA) is being removed from April 2023. This means you will be able to access pensions to any level without paying an additional LTA tax payment. However, Income Tax will still apply as normal.
The pension commencement lump sum (PCLS) or tax free lump sum is being limited to 25% of the current LTA. This means you will only be able to access the lower of £268,275 or 25% of your pension fund tax free when you draw benefits. This cap on tax free cash is also being frozen for the foreseeable future, which is the sting in the tail that makes the removal of the LTA less attractive.

However, individuals who have valid enhanced or fixed protection certificates from before the 15th March 2023 will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection. They will also keep their entitlement to a higher PCLS.

There is still detail missing from how this will all work in practice, but the plan is to remove the LTA from April 2023 and abolish it in a future Finance Bill. Be aware, though, that there is still a long way to go before this is passed as legislation. And even if it is, the Labour Party has already made it clear that they would look to reverse this decision and reinstate a pension LTA if they come into power at the next general election (but with special provisions for medical practitioners). Any additional pension funding being considered by those that already had potential LTA issues should be viewed cautiously in the short term.

If all of that wasn’t enough for pensions, we also had a raising of the annual allowance (AA) from £40,000 to £60,000 from 6 April 2023. This is particularly good news for business owners who can use the increased AA to pay more into pensions to offset the effect of the upcoming Corporation Tax rise.

There was also an increase in the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000. The MPAA affects anyone who has flexibly taken benefits from a pension since 6th April 2015.

The tapered AA is also increasing from £4,000 to £10,000 from 6 April 2023. Due to the increase in AA, the level at which tapering takes place has risen from £240,000 of adjusted income to £260,000; with tapering maxing out at £360,000 instead of £312,000.

Phew! Now onto non-pension content…

Trust simplification

The government are extending existing Income Tax concessions for low income trusts and estates. The idea is to make reporting more straightforward.

Tax thresholds and ISA limits

Personal tax thresholds and ISA limits will remain frozen. As pay increases, this will mean more people fall into higher tax brackets.

Energy price guarantee

The current energy price guarantee of £2,500 is being kept until 1 June 2023, i.e. a further 3 months.

Fuel duty

Fuel duty rates are remaining at their current level for an additional 12 months, including the temporary 5p fuel duty cut.

Business tax and allowances

From 1 April 2023 to 31 March 2026, investments made by companies into qualifying plant and machinery will qualify for 100% first year allowance for main rate assets. Meaning companies across the UK will be able to write off the full cost in the year of investment.

This isn’t our area of expertise, so ensure you talk to your accountant about this.

Childcare

30 hours of free childcare is being extended to all children over the age of 9 months. This is being phased in gradually from April 2024 to September 2025. Two year olds will get 15 hours of free childcare from April 2024, this will then include those over 9 months from September 2025 and will then increase to 30 hours from September 2025.
Overall, it was a positive Budget, and the headline-grabbing pension changes will be good news for some. As always, the devil is in the detail, and we are waiting on the draft legislation to be published so we can establish exactly how this will work in practice before we recommend any changes.

If you have any questions, please don’t hesitate to get in touch.