Budget March 202315 March 2023
From the start of his speech, it was clear that the Chancellor's focus was on growth. Some have termed the Budget of 15 March 2023 the 'back to work Budget'. The Chancellor, Jeremy Hunt MP, seemed in good spirits, and the Office for Budget Responsibility (OBR) announcement that the UK will avoid recession I am sure will help.
The focus was very much on boosting the UK's prosperity, noting that the UK is the only major rich economy that remains smaller than before the Covid-19 pandemic. Part of Jeremy Hunt's plan is encouraging the 'economically inactive' to return to the workforce. This refers to people of working age who are not in work and have not been seeking work, and it is estimated that there are over 7M individuals in this group, around 3.5M of whom are over 50. He is hoping that the huge changes in pensions allowances will tempt back senior professionals (such as doctors) who were wealthy enough to stop work and incentivised to do so because they had maximised their pension savings. In addition, the extension of free childcare to cover very young children is intended to encourage more parents into the workforce.
We have put together details of some of the main points announced in today's Budget and whilst this is not an exhaustive list, we hope it will be helpful. As always, there is some 'devil in the detail'.
If any of the changes affect your position, particularly with regards to pension savings, then please do arrange a review.
Government debt and the state of the UK economy
The Office for Budget Responsibility (OBR) has confirmed that because of changing international factors and other measures, the UK will not now enter a technical recession in 2023.
The size of the economy is set to fall by around 0.2% this year. The OBR then expects growth of 1.8% in 2024, 2.5% in 2025 and 2.1% in 2026.
Borrowing as a percentage of GDP is projected to be 92.4% next year, rising to 93.7% in 2024/2025.
Inflation in Q4 of 2022 was 10.7% and the OBR expects inflation (Consumer Prices Index / CPI) to fall to 2.9% by the end of 2023.
- The HMRC Lifetime Allowance (LTA) – the total amount that an individual can accumulate in pension savings before an additional tax charge applies – is to be abolished. The LTA tax charge will be removed from April 2023 and the LTA itself will be abolished from April 2024. The LTA currently £1,073,100.
- However, the maximum tax-free cash that can be drawn from pensions for those without any LTA protection will be retained at its current level of £268,275 and will be frozen thereafter.
- The standard Annual Allowance for pension contributions will increase from £40,000 gross pa currently to £60,000 gross pa from all sources from the new tax year, having been frozen for nine years.
- The adjusted income threshold for the tapered annual allowance will be increased from £240,000 to £260,000 from April 2023. The minimum level to which an individual's annual allowance can reduce will be extended from £4,000 gross currently to £10,000 gross in the new tax year.
- The Money Purchase Annual Allowance (MPAA) will be extended from £4,000 gross currently to £10,000 gross in the new tax year. The MPAA is a restricted annual allowance which applies to those who have drawn income from a money purchase pension arrangement.
Tax and personal finances
- The reduction in the capital gains tax allowance will proceed, from £12,300 gross pa currently to £6,000 gross pa in the new tax year 2023/2024
- The reduction in the dividend tax allowance will proceed, from £2,000 gross pa currently to £1,000 gross pa in the new tax year
- The personal income tax allowance remains frozen at £12,570 until April 2026.
- The higher rate income tax threshold remains frozen at £50,270 until April 2026.
- The level at which additional rate income tax starts will reduce as expected, from £150,000 gross currently to £125,000 gross in the new tax year
- The inheritance tax threshold remains frozen at £325,000 until April 2026.
- The adult ISA allowance will remain unchanged at £20,000 and the JISA and Child Trust Fund allowance at £9,000 for tax year 2023/2024.
- The starting rate limit for savings income is maintained at £5,000 for 2023/2024.
…and the potholes fund has been increased, which might save you money on car repairs!
Financial support schemes
- Free childcare for working parents in England has been expanded to cover one and two year olds. Currently, working parents with three- and four-year-olds are eligible for 30 hours per week of free childcare. This is to be staged over time. Equivalent funding has been announced for Wales, Scotland and Northern Ireland.
- Parents on universal credit will now receive childcare funding up front, rather than having to claim it back, and the amount parents can claim has increased.
- Energy Price Guarantee extension: support for energy bills at current levels will be extended for a further three months. Typical household energy bills in Britain had been due to rise to £3,000 pa from April 2023, but will now be kept at £2,500 until the end of June. However, the £400 winter fuel payment will not be renewed.
- Further support for those out of work because of disability and long-term sickness to help them return to work without fear of losing financial support.
- Fuel duty has been frozen for another year.
- 'Returnerships' – apprenticeships for the over 50s to encourage them back into work – have been announced.
- The corporation tax rise will proceed as planned, from 19% currently to 25% in the new tax year 2023/2024 for companies with profits of £250,000 or more. A small profits rate of 19% will apply to companies with profits of £50,000 or less and the main rate will taper between these two levels.
- The 'super-deduction' to encourage businesses to use their cash reserves and invest will end this month (March 2023) as expected. This allowed companies to offset 130% of investment cost in qualifying plant and machinery against their tax bill. This will be replaced with a new policy of full capital expensing for the next three years, with an intention to make it permanent as soon as this can be achieved responsibly. So every pound that a company invests in IT equipment, plant or machinery can be deducted immediately from taxable profits.
- £63M fund provided to keep public leisure centres and pools open in the face of high energy costs.
- Levelling up: 12 new investment zones, levelling up partnerships and other funding announced for regions across the UK.
- Research and development tax credits for small to medium enterprises have been increased.
- A streamlined approvals process has been announced for new medicines and medical products.
- Significant funding and support for the UK's artificial intelligence (AI) industry.
If you would like to review your existing arrangements or changes in your circumstances with the team at Chapters Financial then please let us know and we can achieve this face-to-face in the office in Guildford, or of course we can offer a virtual meeting or telephone call to suit. Clearly there is much to consider with regards to pension planning, and we are here to help.
No individual advice is provided during the course of this blog. Speak to your adviser before taking action.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.