2023 Spring Budget Update

General Market Update

Jeremy Hunt delivered his latest financial update as the spring budget was announced on 15th March 2023. The significant outcomes of the budget are as follows:

 

Childcare

  • Parents who are both working at least 16 hours a week and have children aged between 9 months and 2 years old, will receive 15 hours of free childcare per week. This is to be staggered from April 2024 to ensure it can be implemented smoothly, with enough spaces being made available. From September 2024, parents of all children aged 9 months and over will be eligible to claim this. In continuation, Hunt stated that from September 2025, every working parent of children under age 5 will have access to 30 hours free childcare per week.

 

Pension savings

The Chancellor has proposed radical changes to current pension legislation. The highlights are as follows:

 

  • The Lifetime Allowance (LTA) currently caps the amount that individuals can accrue into their pension tax free. This currently stands at Β£1,073,100. As part of Hunt’s new regime, the LTA is to be scrapped meaning individuals can save more into their pension without the worry of incurring a future tax charge. However, the amount that can be withdrawn fax free from a pension will be restricted to the lower of 25% of your pension savings and Β£268,275. As a knock-on-effect of this proposition, the following has been revised:

 

  • The Annual Allowance (AA) is the maximum annual amount an individual can contribute to their pension and receive tax relief on. This figure has been increased from Β£40,000 to Β£60,000 per tax year with effect from 6th April 2023 in order to encourage higher levels of saving towards retirement.

 

  • The Money Purchase Annual Allowance (MPAA) is the maximum you can contribute to your pension once a taxable income has been taken. This figure has increased from Β£4,000 to Β£10,000, to promote further pension contributions even after a taxable income has been taken.

 

  • Once earnings exceed an ‘adjusted net income’ the standard pension AA is tapered. This figure has risen from Β£240,000 to Β£260,000.

 

Cost of living support

  • The energy price guarantee is set to stay at its current limit of Β£2,500, saving the average family an estimated Β£160.

 

Draught tax freeze

  • As part of the β€˜Brexit pubs guarantee’, announced in the Budget last October, Hunt declared that the levy on draught beer and cider would be extended up to an 11p duty cut. However, the duty on other alcohols has remained untouched.

 

Fuel duty

  • The Chancellor has extended the 5p fuel duty initially implemented by Rishi Sunak for another financial year, running until March 2024.

 

Corporation tax

  • With effect from 1st April 2023, the main rate of corporation tax will rise from 19% to 25%, which is estimated to apply to 10% of all UK companies. In addition to this, businesses with profits between Β£50,000 and Β£250,000 will pay a marginal rate between 19% and 25%, with companies profiting less than Β£50,000 paying 19% corporation tax.

 

Forecasts

  • In contrast to the pessimistic outlook in the last autumn budget, the Office for Budget Responsibility (OBR) forecasts that the UK will not enter a technical recession this year. The aim is for inflation to reduce to 2.9% by the end of the calendar year.

 

Our Strategic Views

This is a very interesting Budget specifically around the changes to pension rules which potentially will be of benefit to everyone but as always the devil is in the detail. Β If you have any immediate concerns however, please contact us, otherwise, your financial adviser will cover this, and any other opportunistic financial planning specific to your needs and objectives, during your next meeting.

 

Tax Tables 2022/2023 and 2023/2024

 

Summary and thoughts on LTA:

  • Prior to the Budget and under previous plans, the LTA was to remain at Β£1,073,100 up to and including the 2025/26 tax year.
  • An increase to Β£1.8m had been strongly rumoured in the days leading up to the Budget.
  • The LTA of Β£1,073,100 will remain at the same level for the 2023/2024 tax year.
  • The maximum tax-free cash entitlement remains at 25% of the Β£1,073,100 LTA for the current 2022/2023 and new 2023/2024 tax year.
  • LTA calculations will continue but with no LTA charge.
  • The LTA of Β£1,073,100 will be abolished from 6 April 2024.
  • Labour has hinted that it may reinstate the LTA if elected.

Correct as of 31stMarch 2023. Certain conditions and factors may apply.

Information is subject to change and dependent on individual circumstances.

Further information and advice is available on request.

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