Watch our video where our experts discuss what the latest Budget means for you and your clients retirement planning, both now and when the changes take place in the 2023/24 tax year.
Watch our Spring Budget breakdown
Summary
A ‘back to work’ budget was the theme presented by the Chancellor with measures aimed to encourage the 8 million or so economically inactive into work.
Things aren’t as bleak as forecast last November mainly due to falling energy prices and higher tax revenues. This will reduce Government borrowing this year and next by £30bn less than expected. But anyone hoping that we would see major tax cuts will be sorely disappointed. Whilst the economic backdrop is better than expected, the Government faces challenges of persistent low economic growth and public sector pay demands which makes broad relaxation of the tax burden unlikely for the foreseeable future.
There was a seismic change for pension taxation with the announcement of the abolition of the lifetime allowance. Many will be happy to see the back of it due to its rather blunt application to defined contribution pension pots and the not inconsiderable complexity it brought with it. It will mean many will start to think about contributing to pensions again who may have stopped for fear of incurring a 55% tax charge in the future. Together with the 50% increase in the Annual Allowance to £60,000 we expect significant interest in pension funding from clients especially at a time of growing fiscal drag.
Income Tax
No further changes were announced in relation to the personal allowance and tax bands.
These were previously confirmed to be frozen until 2028 in the Autumn Statement in November 2022. With the exception of the Additional Rate threshold falling to £125,140.
Also, announced in the Autumn Statement, the dividend allowance is due to decrease from April 2023 to £1,000 and then again to £500 in 2025.
The Chancellor did confirm in the Budget 2023 that the starting rate for savings would remain at the current level of £5,000 for the tax year 2023/24.
Capital Gains Tax
See the table below to confirm the reduction in the CGT annual allowances announced in the Autumn Statement 2022.
The following was announced in the Budget 2023:
Change to assessment time period
A specific measure relating to disposals of an asset under an unconditional contract. The change ensures HMRC and taxpayers are not out of time (4 years) to assess tax due or make claims. The time limit will apply from the end of the tax year the contract is completed rather than the year in which the contract is entered into.
The change will apply in relation to contracts entered into on or after 1 April 2023 for corporation tax and 6 April 2023 for Capital Gains Tax.
Separation and divorce
As announced on 20 July 2022, changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating will apply to disposals on or after 6 April 2023. They will be given up to three years in which to make no gain/no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.
In addition, some special rules will apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
Trust and estates
Simplification measures for ‘low income trust and estates’.
A package of measures has been announced:
- trusts and estates with income up to £500 will not pay tax on that income as it arises
- removal of the basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income
- beneficiaries of UK estates will not pay tax on income distributed to them that was within the £500 limit for the personal representatives
- technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly.
This will be effective from April 2024, with the exception of the last bullet which will take effect from April 2023.
Inheritance Tax
No measures announced in the Budget 2023. See the table below on the announcements from the Autumn statement which froze several of the IHT allowances.
Stamp Duty Land Tax (SDLT)
No measures announced in the Budget 2023 in relation to the main rates of SDLT. See the table below confirming the rates which apply.
National Insurance
It was announced that the Lower Earnings Limit and Small Profits Threshold will remain at 2022-23 levels. No further changes were announced.
ISA allowances
ISA allowance remains unchanged at £20,000 for 2023/24.
JISA (CTF) allowance also remains at current level, £9,000 for 2023/24.
Pensions
The Lifetime Allowance is no more
We haven’t had any material changes to pensions for some 5 years or more. However, this changed today with the abolition of the lifetime allowance tax charge from 6 April 2023. Many different payments from pensions refer to the lifetime allowance in their definition, with that in mind the Government have stated that the lifetime allowance will be completely abolished from 6 April 2024, giving time to work the changes through.
That said, we know that from 6 April 2023:
- The maximum that clients can claim as Pension Commencement Lump Sums will be capped at 25% of current LTA (£268,275), except where existing protections apply.
- For serious ill-health lump sums, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefits, currently where the amount paid is above the available LTA its taxed at 55%, but from 6 April 2023 the amount that would have been taxed at 55% will instead be taxed at the individual's marginal rate.
The Annual Allowance
The Annual Allowance (AA) increases from £40,000 to £60,000 for 2023/24.
The Money Purchase Annual Allowance (MPAA) increases from £4,000 to £10,000 for 2023/24.
The tapered annual allowance becomes a bit more generous. The adjusted income level for the tapered AA increases from £240,000 to £260,000 for 2023/24 and the minimum tapered Annual Allowance will be £10,000 for those with income of £360,000 and above.
Open and closed public service pension schemes will be linked for the purpose of calculating AA charges, allowing individuals to offset negative AA growth in legacy public schemes against the AA for 2023/24.
The net pay problem
As previously announced the government will make top-up payments, in respect of tax year 2024 to 2025 and onwards, to individuals with a total income below the Personal Allowance who save into a pension scheme using a net pay arrangement. These top-ups will better align outcomes with equivalent savers saving into pension schemes using Relief at Source. The measure will take effect from 6 April 2025.
Collective Money Purchase schemes
The Pension Schemes Act 2021 introduced legislation to allow Collective Money Purchase (CMP) pension schemes to operate in the UK. As previously announced the government will legislate in Spring Finance Bill 2023 to clarify the tax treatment on transfers, periodic income and the valuation of dependant pension benefits during the wind-up of a CMP scheme.
Corporation Tax rates
As previously announced changes to corporation tax rates come into effect from 1 April 2023. This increases the main rate of corporation tax to 25% and the small profits rate at 19%. Marginal Relief is available for companies whose profits are between £50,000 and £250,000.
Full expensing
Announced today, this measure will temporarily increase the relief available for capital expenditure on plant and machinery in the year the expenditure is incurred. For qualifying expenditure incurred on or after 1 April 2023 but before 1 April 2026, companies can claim:
- a 100% first-year allowance for main rate expenditure – known as full expensing; and
- a 50% first-year allowance for special rate expenditure.
Tax Table
|
2022 - 2023 tax year |
2023 - 2024 tax year |
Frozen until (where known) |
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Personal Taxation |
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||
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Income tax bands |
|
|
|
|
Basic |
£1 - £37,700 |
£1 - £37,700 |
April 2028 |
|
Higher |
£37,701 - £150,000 |
£37,701 - £125,140 |
|
|
Additional |
Over £150,000 |
Over £125,140 |
|
|
|
|
|
|
|
Income tax rates (main rate) |
|
|
|
|
Basic |
20% |
20% |
April 2028 |
|
Higher |
40% |
40% |
|
|
Additional |
45% |
45% |
|
|
Starting rates for savings income |
0% |
0% |
|
|
|
|
|
|
|
Income tax rates (dividends) |
|
|
|
|
Basic |
8.75% |
8.75% |
April 2028 |
|
Higher |
33.75% |
33.75% |
|
|
Additional |
39.35% |
39.35% |
|
|
|
|
|
|
|
Income tax allowances |
|
|
|
|
Personal allowance |
£12,570 |
£12,570 |
Dividend allowance reduces to £500 in April 2024.
Other income tax allowances frozen to April 2028 |
|
Starting rate for savings income |
£5,000 |
£5,000 |
|
|
Dividend allowance |
£2,000 |
£1,000 |
|
|
Personal savings allowance |
£1,000 (BR) £500 (HR) £0 (AR) |
£1,000 (BR) £500 (HR) £0 (AR) |
|
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|
|
|
|
Capital gains tax rates |
|
|
|
|
Main rates for individuals |
10% / 20% |
10% / 20% |
|
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Residential property |
18% / 28% |
18% / 28% |
|
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Entrepreneur's relief rate |
10% |
10% |
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||
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Capital gains tax allowances |
|
|
|
|
Annual exempt amount |
£12,300 |
£6,000 |
Reducing to £3,000 in April 2024 |
|
Entrepreneurs' Relief - Life time limit |
£1,000,000 |
£1,000,000 |
|
|
|
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||
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Inheritance Tax |
|
|
|
|
Nil rate band |
£325,000 |
£325,000 |
April 2028 |
|
Residential nil rate band (RNRB) |
£175,000 |
£175,000 |
|
|
Rate (estates) |
40% |
40% |
|
|
Reduced rate (10% of estate to charity) |
36% |
36% |
|
|
Lifetime Rate (CLTs) |
20% |
20% |
|
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|
|
|
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Trust Taxation |
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Income tax bands |
|
|
|
|
Standard rate band |
Up to £1,000 |
Up to £1,000 |
Will not apply from 2024/25 Exemption for ‘low income trusts’ will also apply from 2024/25 |
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Income tax rates |
|
|
|
|
Trust main rate |
45% |
45% |
|
|
Trust dividend rate |
39.35% |
39.35% |
|
|
|
|
|
|
|
Capital gains tax allowances |
|
|
|
|
Annual exempt amount |
£6,150 |
£3,000 |
Reducing to £1,500 in 2024 |
|
|
|
|
|
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Capital gains tax rates |
|
|
|
|
Main rate |
20% |
20% |
|
|
Residential property |
28% |
28% |
|
|
|
|
|
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Corporate |
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|
Corporation tax |
19% |
19 % (profits under £50,000)
25% (profits over £250,000
Companies with profits between £50,000 and £250,000 will be tapered between 19% and 25%. |
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ISA Allowance |
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||
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Adult ISA Allowance |
£20,000 |
£20,000 |
|
|
Junior ISA Allowance |
£9,000 |
£9,000 |
|
The information provided in this article is not intended to offer advice.
It is based on Quilter's interpretation of the relevant law and is correct at the date shown. While we believe this interpretation to be correct, we cannot guarantee it. Quilter cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.