On 15th March, the government announced the Spring Budget 2023, with some major statements made by the Chancellor of the Exchequer, Jeremy Hunt. The budget comes with the UK still in a cost-of-living crisis that has left millions of households struggling to pay their bills with fuel, food, and energy prices being the highest on record.
However, the Chancellor claimed the British economy is “proving doubters wrong” and his “budget for growth” will see the UK avoid a recession, although only narrowly, as it’s still predicted to contract by 0.2% this year.
He took a “three Es” approach, specifically targeting enterprise, education, and employment, and below are the key points taken from the Spring Budget that we think you should know.
Tax and pensions
- The pension annual tax-free allowance will be increased from £40,000 to £60,000 from 6th April 2023. Which means more can be saved into pension pots without penalty. The income threshold at which the tapered annual allowance will apply will also increase from £240,00 to £260,000.
- The Money Purchase Annual Allowance (MPAA), triggered when flexible benefits from a defined contribution pension are accessed, will be restored to £10,000, currently set at £4,000.
- Amid rumours of increasing the Lifetime Allowance (LTA) on pensions (the maximum pension savings an individual can build up over their lifetime without an additional tax charge at the point of taking benefits), which is currently £1.073 million, the Chancellor went one step further by abolishing it completely. This is in an effort to incentivise the over 55s to remain in or return to work, specifically with doctors in mind. Although the devil is in the detail of this change, it’s not as simple as the headlines make out.
- The Chancellor confirmed that the main rate of corporation tax paid by businesses with taxable profits over £250,000 will still go up to 25% (currently 19%). Companies with profits between £50,000 and £250,000 will pay between 19-25%. However, he also announced a new policy of “full capital expensing” over the next three years, meaning investments in IT equipment, plant, or machinery can be deducted immediately from profits.
- The annual investment allowance has increased to £11m for small businesses. Allowing 99% of all businesses to deduct the total value of their investment from taxable profits each year.
- Good news for fans of a pint, Mr Hunt told MPs, “British ale may be warm, but the duty on a pint is frozen”, as the tax on draught beer in pubs will remain as it is from 1st August 2023. Making it 11p lower than the duty on beer in supermarkets.
Jobs and work
- 30 hours of free childcare where both parents are working will soon be available to cover one and two-year-olds. This will be rolled out in stages from April 2024. The childcare shakeup also included incentives to boost the number of childminders and wrap-around school care. Jeremy Hunt claimed this was “the right thing to do for women”, and hopes this will drive more people back into work.
- £63m was promised to encourage retirees over 50 back to work.
- The Chancellor also revealed several other policies to tackle the UK’s labour shortage and encourage people back into the workplace. Including reforms to support disabled people, those with long-term health conditions and those on Universal Credit.
Energy and Fuel
- In the Spring Budget 2023 it was confirmed that the energy price guarantee would be extended for three months from April to June at its current level, with the Chancellor adding that he listened to Martin Lewis’ advice. This move would see bills for the average household staying at around £2,500 instead of going up to £3,000 as was previously announced.
- Nuclear power will be reclassed as ‘environmentally sustainable’, giving it access to the same investment incentives as renewable energy.
- Fuel duty has been frozen, with the 5p per litre discount still applying for another 12 months.
What does the Spring Budget 2023 mean for you?
The Spring Budget 2023 has seen significant changes, specifically to pensions and childcare. But what does this mean for your finances? We delve a little deeper into the detail.
The abolition of the Lifetime Allowance and the increase to the Annual Allowance is arguably the biggest shakeup to pension regulation since A-Day in 2006 and could alter retirees’ plans significantly.
The LTA is the total amount you can save into your pensions before facing a tax charge, and it had been frozen at £1.073m until 2026. However, following Hunt’s announcement, this upper limit will disappear from 6th April 2023. This potentially means that those coming close to breaching the limit could continue to work, be encouraged back to work or at least continue saving into their pensions for longer without being penalised when they take the benefits back at a later stage.
Whilst this appears a welcome change on the face of it, unfortunately, there are a few caveats to be aware of. The main one being the maximum amount of tax-free cash which can be taken is still only 25% of the current LTA, which means only £268,275 can be taken as a pension commencement lump sum (PCLS), not 25% of your total accumulated pension wealth. Anything over that will be taxable at your marginal rate of tax.
The increase in the amount that can be paid into a pension each year from £40,000 to £60,000, also known as the Annual Allowance, will offer better scope for retirement planning for those earning more or variable amounts from year to year.
The Chancellor also increased the MPAA from £4,000 back up to £10,000, which means retirees who have accessed pension benefits already can pay in more to their pensions and potentially allow those who have already retired to return to work and benefit from further pension contributions without being penalised.
Overall, the reforms should give those with large pension pots close to retirement more room to save and the ability to pass more wealth down free of Inheritance tax. But as with any tax changes, they can be reversed or changed in the future, so until we have more stability, it is difficult to plan too far ahead.
There were no further changes to the income, dividend or capital gains tax that we didn’t already know about, as these were covered in the Autumn Statement. However, with most of these known changes coming into effect shortly, it’s wise to understand the impact that these will have on your finances, which one of our financial planners can help with.
Cost of Living
In a bid to support households during the cost of living crisis, Hunt announced the Energy Price Guarantee will be extended for a further three months, as well as extending the cut to fuel tax for another year.
The additional support offered to working parents was announced in a bid to make it financially feasible for those with children aged one and two to return to work.
Want to know more
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In the meantime, if you have any questions about your finances or how the budget changes affect your situation, please get in touch with one of our team.