Following the Chancellor's Spring Budget statement, Jacqui Beesley from our Financial Planning Team has been burning the midnight oil to understand the changes and opportunities that have arisen. Here's her summary...
Yesterday (15th March 2023) Jeremy Hunt delivered the Spring Budget and overall the message was a positive one. Inflation is forecast to more than halve to 2.9% by the end of 2023 and Great Britain should avoid falling into a recession, the Chancellor said. The Government has proposed many new incentives to grow business in the UK and get people back to work to deliver on its budget which has been labelled “a budget for growth”. If you want to read the full document, then you can do so here.
Rather than regurgitate the entire content back to you in our own words, we want this article to focus on what changes are most likely to impact our clients and their personal finances, and the actions that are needed to take full advantage of the changes.
So, let’s start by covering what hasn’t changed:
The Individual Savings Allowance (ISA) remains at £20,000 per year.
The Junior ISA/Child Trust Fund allowance remains at £9,000 per year.
The savings rate for savings income remains at £5,000 per year.
There are also some changes that have already been announced before yesterday. These include:
The capital gains tax allowance will reduce to £6,000 from 6th April 2023 and then to £3,000 from 6th April 2024.
The dividend allowance will reduce to £1,000 from 6th April 2023 and then £500 from 6th April 2024.
Income tax personal allowance and bands remain frozen until 2028.
Of the changes that were announced in this budget the ones that will impact our clients the most were around pensions.
Pensions Changes
There was widespread speculation ahead of the budget that there would be changes to pensions and in particular the amount that you can hold within a pension without suffering tax penalties, known as the lifetime allowance or LTA. There has been criticism of this 'cap' on pension savings for some time, especially for senior healthcare professionals for whom the LTA has been a serious disincentive to continue working after the LTA is reached. The changes announced went beyond expectations and provide a serious boost to the attractiveness of pension savings.
The following changes will come into effect from 6th April 2023:
The pension annual allowance will be increased from £40,000 to £60,000. The pension annual allowance is the maximum amount an individual can have paid into their pensions in any tax year without incurring a charge, subject to any carry forward allowance available.
The Money Purchase Annual Allowance (MPAA) will be increased from £4,000 to £10,000. The MPAA replaces an individual’s pension annual allowance once they have drawn a taxable income from their pension benefits, other than via a capped drawdown arrangement.
The minimum amount that a pension annual allowance can be tapered down to has been increased from £4,000 to £10,000 and the level at which it will be tapered is increasing from £240,000 to £260,000. An individual’s pension annual allowance can be reduced based on the level and structure of their remuneration package.
The pension Lifetime allowance is being completely abolished. The pension lifetime allowance was a limit on how much a person could save into pensions over their lifetimes and any amounts in excess of their allowance would be subject to a Lifetime Allowance charge at 25% or 55% depending on how it was drawn.
But we are getting a bit ahead of ourselves as the changes are not passed into law yet. The legislation needs to go through Parliament which will likely be with the next finance bill, so we don’t expect this to be official until that happens, probably April 2024. However from 6th April 2023 the Lifetime Allowance charge has been removed so from that date you will be able to breach the allowances with no penalty to pay.
The result of the above changes is that you can now save significantly more in pensions and benefit from the upfront tax relief as well as long-term tax-free growth which is also not subject to inheritance tax. This opens up greater planning opportunities and it's essential to get good advice on your options.
So, what action do you need to take?
At this time you don't need to do anything as the above changes don’t come into effect until the new tax year (6th April 2023).
If you are already a client of Chesterton House all of these changes will be taken into account as part of your regular Progress Meeting process, and we will contact you if there are any actions to be taken before then. However, if you want to discuss the content of this article or any other questions you may have around the budget announcements, please contact a member of your team.
There are a raft of other changes contained in the budget, and we'll be commenting on them further in future posts. Many of these are aimed at specific business sectors, and if you think you're affected, please speak to our Accounting Team who can give you individually tailored advice.
If you aren't a Chesterton House client but have any questions on the above or would like to see if we can help you with your financial affairs please call or email us directly. You can get in touch with us here.