The Chancellor, Jeremy Hunt, announced his Spring Budget yesterday which provided a huge boost to pension savers. He also resisted the pressure to reduce taxes in any significant way, and highlighted the UK economy is on track to grow in the coming year with inflation halving.
We have listed any new variations in the UK tax rates, allowances, reliefs and other matters of interest in the update set out below.
Increase in pensions’ tax support
The present £40,000 cap on annual pension contributions that qualify for Income Tax relief is being increased to £60,000 from 6 April 2023.
The present Lifetime Allowance is being abolished, meaning that there will be no LTA tax charge when you access your funds. Both of these changes are intended to incentivise older employees to continue in work whilst continuing to build additional pension savings.
In addition, the Money Purchase Annual Allowance will increase from £4,000 to £10,000 and the minimum Tapered Annual Allowance will increase from £4,000 to £10,000 from 6 April 2023.
The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
If you want to discuss how these pension changes could impact you, or anything to do wth your current pension arrangements, then contact us today.
Childcare support increased
Childcare support in England is being expanded to include children over the age of 9 months. The announcement confirmed 30-hours of free childcare for every child over the age of 9 months, with support being phased in until every single eligible working parent of under 5s gets this support from September 2025.
The changes will be introduced in phases, with 15-hours of free childcare for working parents of 2-year-olds coming into effect in April 2024 and 15 hours of free childcare for working parents of children from 9 months from September 2024.
State pensions
The triple lock on the State Pension is maintained, guaranteeing the 10.1% CPI-based increase for next April along with the same level of increase to the Pension Credit. There has been an ongoing review of State Pension age and whether the current timetable for changes is still appropriate. The Government have said they will publish their response by May this year.
Income tax
Rates – Income tax rates for 2023/24 will remain at the basic, higher and additional rates of 20%, 40% and 45% respectively.
Allowances and thresholds – The point at which additional rate tax becomes payable will be cut from £150,000 to £125,140 from 6 April 2023. This will mean that those already paying tax at 45% will pay an extra £1,243 in 2023/24. The Government forecast that approximately 250,000 individuals will pay some extra tax due to this measure. 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.
Dividends – The dividend allowance is to be halved from £2,000 to £1,000 for 2023/24, and halved again to £500 for 2024/25. Consequently, many more investors will need to complete tax returns if their dividend income exceeds £1,000 next year. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35% for 2023/24.
National Insurance
NI thresholds will be fixed at the current 2022/23 levels. The changes to the thresholds at which individuals (both employed and self-employed) start to pay NI, introduced in July 2022, will remain – i.e. they’re kept in line with the annual personal allowance of £12,570.
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. Consequently, based on 2021/22 figures, an estimated extra 235,000 individuals will need to file a self-assessment return in 2023/24.
The rates of CGT will continue at 10% for gains falling in the basic rate band when added to income, and 20% for gains exceeding the higher rate threshold (18% and 28% respectively for gains on residential property).
Inheritance Tax
The nil rate band (NRB) and residence nil rate band (RNRB) will remain at £325,000 and £175,000 until April 2028.
Corporation Tax
Corporation tax will rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits between £50,000 and £250,000 so that they pay less than the main rate.
We encourage readers who are concerned or interested in more information on any of the announcements described in this short update, to pick up the phone to discuss how you may be affected.
Source: HM Treasury