The UK Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, has today delivered the Spring Budget. Seen as a somewhat more calming influence than his predecessor (whose ‘Mini-Budget’ ultimately played a large part in the shortest tenure of any Prime Minister in British history), Mr Hunt has pledged to put Britain on a ‘hard road’ to recovery, while delivering a ‘budget for growth’; a difficult balancing act for the Treasury with Hunt’s attempt to reduce inflation, mitigate the cost of living crisis and keep a balanced budget.
Although advisors and clients alike will be settled by the relatively few tax changes announced in the Budget, it nonetheless provides a timely reminder for taxpayers to review their affairs before the end of the UK fiscal year on 5 April.
Coined as the ‘back to work’ Budget, it was speculated that Hunt would tackle labour shortages and get people re-engaged in economic productivity from his Budget proposals.
Unlike the drastic changes that were proposed (and then reversed) in the ‘Mini-Budget’ under the leadership of the ephemeral Liz Truss in September 2022, Mr Hunt and current Prime Minister Rishi Sunak are taking a more conservative approach in an attempt to stabilise the economic turmoil that has been created by the raft of political uncertainty over the last few years.
No previously-unknown changes to tax allowances, rates or thresholds were announced today. While inflation sits at 8.8% as of January 2023, It appears Hunt and Sunak’s plans to continue freezing tax bands will provide a mechanism for reducing inflation, utilising the effects of fiscal drag. This should contribute to the prediction by the Office for Budget Responsibility that inflation will fall to 2.9% by the end of 2023.
Of exceptional note, however, are pension changes: the annual pension allowance (the maximum an individual can contribute to a pension each year) will rise from 6 April 2023, from £40,000 to £60,000. This is good news for higher-earners who wish to save for retirement, whilst obtaining valuable tax relief for doing so.
Of significant surprise was the abolition of the pension lifetime allowance cap (very broadly meaning the maximum value a pension may be worth without incurring tax charges, subject to various historic transitional provisions) of £1.07m. Although it had been widely speculated that the lifetime allowance would increase, few had envisaged it being scrapped entirely. The significance of this move cannot be understated; although its effects are likely to be felt most immediately by higher-earners, will a return to an ‘unlimited’ pension pot allow for considerably greater investment within the UK by institutional pensions?
There was little to no mention of inheritance tax in this Budget.
However, Mr Hunt proposes to simplify the administration of trusts and estates, with plans to formalise and extend an existing income tax concession for low income trusts and estates and provide further changes to make calculations and reporting more straightforward. HMRC also intends to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements. Details are yet to be finalised.
Although corporation tax is set to increase to 25% in April as expected, an overhaul of capital allowances will provide welcome tax breaks for business investments. From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance. This means companies across the UK will be able to deduct the full cost of qualifying assets when calculating their profits, which may go some way to offsetting the increased rate of tax... Companies purchasing other types of capital assets than plant and machinery will also benefit from a 50% first-year allowance in the year of investment. This is on top of the decision in Mr Hunt’s Autumn Statement to permanently set the Annual Investment Allowance at £1 million.
Actions to take
This may not have been a particularly ‘exciting’ Budget for tax advisors (for which many of us are breathing sighs of relief), financial advisors will be kept busy updating clients’ retirement plans in light of the significant pension changes.
Nonetheless, it is a well-timed reminder to review your or your clients’ tax affairs more generally ahead of the tax year-end. Worthy of consideration:
Increasing pension contributions from April 2023 to mitigate your tax liability, making use of the abolishment of the annual pension allowance (specialist investment and financial planning advice must be taken in this respect);
- Maximising business investment into qualifying assets to make use of increased allowances from 1 April 2023, in order to offset the increasing rate of corporation tax;
- Maximising available personal tax bands, rates and allowances available before the end of the tax year on 5 April 2023 - for example, making full use of your income tax and capital gains tax allowances (as the saying goes, ‘use them or lose them’).
The pension changes form the most significant part of today’s announcements. However, pension legislation and regulation can be exceptionally difficult to navigate, with numerous opportunities to unintentionally trip yourself up. Before taking or refraining from taking any action in respect of your pension, you must always seek specialist advice from a qualified, experienced pension advisor. Sanctoras does not provide this advice, but we will happily provide you with details of firms that do.
Get in touch
To discuss your own or your clients’ circumstances in more detail, and to review any actions you may need to take as a result of today’s announcements or more generally, please contact one of the Sanctoras team who would be delighted to arrange a consultation.
+44 (0)204 574 4796 (UK)
+971 (0)4 888 6520 (UAE)