The March 2023 Spring Budget
On the 15th of March 2023 the chancellor Jeremy Hunt outlines the government’s spending and taxation plans for the 2023/24 tax year and beyond. The government’s finances have a lot of recovering to do, with the Sunak government inheriting the consequences of the massive levels of spending during the pandemic, as well as the results of the failed Truss government, on top of an already large debt pile.
Rather than focusing on reducing government debt in real terms, Hunt seemed intent on improving the government debt to GDP ratio, i.e. the size of the debt relative to the size of the economy. His plans to do so included the creation of 12 new low-tax investment zones and getting those who are able to work, namely parents, older people, and carers, back into the labour market. These measures are beyond the scope of this summary, which will focus on the measures that may have financial planning implications.
The Conservatives are naturally claiming the budget is economically expedient, but there also seem to be political motivations, as it is widely expected they will not win the next election. According to the OBR’s forecasts, the government’s plans contribute to increased economic growth in the short term, but a reduction from previous forecasts after 2025; just in time for the next election. This may put more pressure on whoever takes the reins after the vote.
Pensions
Many changes were made to the taxation around pensions which could have significant tax-planning implications, to read our exploration of some of these implications click here. It is worth noting that Labour have said they will reverse some of these changes if they win the next general election, so it is possible they may be temporary.
Lifetime Allowance (LTA)
From April 2023 no-one will face an LTA charge irrespective of the level of their pension benefits. And from April 2024 the LTA will be abolished. This means there should be no additional tax charges on withdrawing from pension funds over the current cap of £1,073,100. The current cap of £1,073,100 has been completely removed. As have a raft of transitional provisions that provided a higher lifetime allowance for certain individuals (with one key exception, discussed below).
In simple terms, this will allow many people much more scope to save into pensions than had previously been the case. This includes those with a protected lifetime allowance who have been unable to contribute further without losing this protection and incurring substantial tax charges as a result.
Tax free lump sums
As 25% of a pension can be taken tax-free, the maximum tax free amount under the lifetime allowance is £268,275. This is to remain the same after the lifetime allowance is removed. There is no suggestion, yet, that this will be index-linked, potentially representing another form of stealth tax. Those with a protected lifetime allowance should continue to benefit from the higher level of tax-free lump sum their protection implied.
Annual Allowance (AA)
The AA is increasing by 50% to £60,000 (from the current £40,000).
From April 2023, different Public Service Pension Schemes (PSPS) for each public service workforce (for example, the 1995, 2008 and 2015 NHS Pension Schemes) are to be treated as one arrangement for the purposes of calculating the Pension Input Amount for testing against the Annual Allowance (but only where the arrangements are for the same workforce).
Investments
Capital Gains Tax
The CGT annual exemption will be cut from £12,300 to £6,000 from April 2023, and to £3,000 from April 2024.
Inheritance Tax
The nil rate band (NRB) and residence nil rate band (RNRB) will remain at £325,000 and £175,000 until April 2028. However, we believe there may be other changes on the horizon, check our article about the potential changes to CGT and IHT here.
Dividend allowance
The dividend allowance is to be halved from £2,000 to £1,000 for 2023/24, and halved again to £500 for 2024/25.
Seed Enterprise Investment Scheme (SEIS)
The company investment limit will increase from £150,000 to £250,000, the limit at the date of share issue on a company’s ‘gross assets’ will increase from £200,000 to £350,000 and the age limit of a company’s ‘new qualifying trade’ from 2 to 3 years.
The annual limits that apply to the investment amount on which individuals can claim income tax and Capital Gains Tax re-investment reliefs will also increase from £100,000 to £200,000.
Real Estate Investment Trusts
Amendments to the Real Estate Investment Trust (REIT) regime to enhance its competitiveness:
- The requirement for a REIT to hold a minimum of three properties has been removed where it holds a single commercial property worth £20m or more.
- The rule that deems a disposal of property within 3 years of being significantly developed to be outside the property rental business has been changed. The valuation used for calculating what constitutes a “significant development” reflects property value increases.
- Amendments have been made to rules for deduction of tax from property income distributions paid to partnerships.
Company Share Option Plan (CSOP)
Changes to the Company Share Option Plan (CSOP), a tax-advantaged employee share scheme available to all UK companies and their employees.
- The employee share options limit will be doubled from £30,000 to £60,000.
- The ‘worth having’ condition, which limits which types of shares are eligible for inclusion within a CSOP scheme, will be removed.
Income
Tax Rates
Income tax rates for 2023/24 will remain at the basic, higher and additional rates of 20%, 40% and 45% respectively.
Tax Bands
The additional rate band will be cut from £150,000 to £125,140 from 6 April 2023. The personal allowance and basic rate band will be £12,570 and £37,700 respectively and are to remain frozen until April 2028. This means that the higher rate tax threshold will remain at £50,270 for those entitled to a full personal allowance.
The reduction of the additional rate band may seem like bad news for those that have to pay, but that may not be the case. Click here for our article about the how this change could be a great financial planning opportunity.
Business
Corporation tax
The corporation tax increase from 1 April 2023 (first announced in 2021) was confirmed, and the main rate will be 25% after that date. However, businesses with profits of under £50,000 will pay the old rate of 19%
from 1 April 2023 until 31 March 2026, companies will be entitled to claim a 100% first year allowance for capital expenditure on IT equipment and plant and machinery. The 50% deduction that was introduced for special rate expenditure alongside the super deduction will be extended through this period.
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