Spring Budget 2023: What does it mean for you?
Today, the Chancellor of the Exchequer, Jeremy Hunt, delivered his Spring Budget 2023. Key changes include measures to encourage people back to work and to save for retirement. Here are the highlights for both individuals and businesses:
Budget highlights for individuals
1. Lifetime allowance for pensions
The lifetime allowance is the total amount you can build up in pension savings without incurring a tax charge. This is currently £1,073,100, but will shortly be removed completely, with no-one paying a lifetime allowance tax charge from 6 April 2023.
This is great news for anyone close to, or already over, the current threshold. They can now add to their pension savings without fear of paying extra tax.
The maximum amount you can take as a tax-free lump sum will still be capped at £268,275 (25% of the current lifetime allowance). This does not apply to those with lifetime allowance protection.
2. Annual allowance for pension contributions
This is the maximum amount you can save into your pension plans each year, and includes payments from you, your employer and third parties. Contributions over and above the annual allowance incur an additional tax charge.
The annual allowance on pension contributions will rise from £40,000 per year to £60,000 per year from 6 April 2023.
3. Money Purchase Annual Allowance
Once you withdraw money from your pension plan, your annual allowance for pension contributions is reduced to £4,000. This is known as the money purchase annual allowance. Under new rules, this will increase to £10,000 per year from 6 April 2023. This makes it more attractive to keep working and saving, even after taking flexible income from your pension.
4. Income Tax*
The tax free personal allowance remains at £12,570 and the higher rate tax threshold is £50,270. These thresholds have been frozen until 2028. The 45% additional rate tax threshold will be lowered from £150,000 to £125,140 from 6 April 2023.
* These rates apply for England, Wales and Northern Ireland. Rates and thresholds differ for Scotland.
5. National Insurance (NI)
The NI earnings thresholds remain frozen until April 2028.
6. Inheritance Tax
The Inheritance Tax Nil Rate Band and additional Residence Nil Rate Band remain frozen at £325,000 and £175,000 respectively until April 2028.
7. State Pension
The State Pension will increase by £870 to £10,600.20 per year from 6 April 2023, an increase of 10.1% in line with inflation.
8. Dividend Tax allowance
This is being reduced from £2,000 per year to £1,000 per year from 6 April 2023 and to £500 per year from 6 April 2024.
9. Capital Gains Tax
The annual Capital Gains Tax exemption will reduce from £12,300 to £6,000 from 6 April 2023 and then to £3,000 from 6 April 2024.
10. ISA allowances
ISA allowances remain unchanged at £20,000 for adults and £9,000 for Junior ISAs (for those under age 18).
11. Additional childcare support
The government is significantly expanding childcare support by extending the 30 hours free child care to all children over the age of nine months, as well as additional wraparound support for school children.
12. Energy price guarantee
Government subsidies limiting typical household energy bills to £2,500 a year have been extended for three months, until the end of June 2023.
Budget highlights for businesses
1. Corporation Tax
The main rate of Corporation Tax, paid by businesses on taxable profits over £250,000 to increase from 19% to 25% from 1 April 2023.
2. Capital allowances
Companies will be able to fully offset the cost of qualifying UK investments in new machinery and technology to lower their taxable profits for the next three years.
An apprentice style programme is being launched to bring over-50’s back into the workplace, with 40,000 new placements available.
4. Fuel Duty
Fuel duty is being maintained at current levels for the next 12 months, worth £200 for the average car driver.
5. VAT threshold
The VAT registration threshold will be maintained at £85,000 for a further two year period from April 2024 and the headline rate of VAT remains at 20%.
6. Living Wage increase
The National Living Wage will rise from £9.50 per hour for over 23’s to £10.42 from April 2023, an increase of 9.7%.
7. National Insurance (NI)
The National Insurance employment allowance of up to £5,000 is frozen until April 2028.
The government has set aside £100 million to support local charities and community organisations.
AJB Wealth’s view
The Chancellor framed the Budget alongside some of the Prime Minister’s key priorities for 2023. These include reducing inflation and getting the economy growing. The first welcome news was that inflation is forecast to reduce to 2.9% by the end of 2023, according to The Office for Budget Responsibility.
The majority of the Budget was focussed on economic activity. Key measures are aimed at supporting economically inactive people back to work, and offering incentives to business to invest for the future. Working parents, and those wishing to return to work, will welcome the additional free childcare to be offered.
Despite much speculation, the Chancellor has persisted with increasing the rate of Corporation Tax from 19% to 25%. However, there is a new three-year window for UK capital expenditure to be fully offset against profit.
The biggest individual tax announcements are around pensions. The complex lifetime allowance is being scrapped, and annual contribution limits have increased from £40,000 to £60,000. Income and capital gains taxes are increasing from April, as announced before Christmas.
AJB Wealth’s Managing Director, Paul Willans, commented, ‘Pensions once again represent an increasingly attractive way to save for the future. This is due to income tax rates rising, and to greater headroom available. The announcement was a direct call to those who were near the lifetime allowance limit and had stopped funding, to think again.’
Our experienced and highly-qualified team at AJB Wealth is well placed to work with you to help you achieve financial efficiency and security. To arrange an initial consultation, please book a meeting, or call us on 01483 774 070.