Spring Budget 2023: key changes

Jeremy Hunt opened his first full Budget speech by declaring that it was a ‘budget for growth’. He emphasised that this would be ‘long term, sustainable, healthy growth’. The Office for Budget Responsibility reported that there is unlikely to be any growth in 2023, but the UK is likely at least to avoid a recession.

After the turmoil of four Chancellors of the Exchequer and three fiscal statements in 2022, it was to be expected that Mr Hunt would try to avoid too many surprises. The great majority of the tax announcements had been made in advance, and most of the speech concentrated on spending plans.

What’s changing from April 2023?

1. Pension savings

From April 2023, the Annual Allowance (AA) is increased to £60,000; the taper will begin at £260,000, and the minimum AA will be £10,000. There is also an increase in the Money Purchase Annual Allowance, which applies where someone has started to draw taxable benefits from a money purchase pension scheme and then wishes to make further contributions: this will also be increased from £4,000 to £10,000.

From 6 April 2023 the Lifetime Allowance (LTA) Charge is abolished. The maximum amount that can be drawn as a tax-free lump sum remains 25% of the current LTA unless the person is entitled to ‘protection’ in relation to the original introduction of the LTA or any of the subsequent reductions of the limit. The LTA will be abolished altogether and a separate rule will be brought in to limit the tax-free lump sum.

This may encourage people who have stopped contributing to funds because they are over or near the LTA to consider further investments. The problem with pension schemes is that the rules change many times over the life of the scheme, and the most relevant ones are those in force when benefits are taken. It would be prudent to bear in mind the possibility that this very substantial tax cut for those with the largest pension pots might not be permanent.

2. Personal Income Tax

Personal tax rates and allowances on income and capital gains, and National Insurance Contributions, confirmed for 2023/24.

The income level above which the personal allowance is tapered away remains £100,000; it will be reduced to zero when income is £125,140. For 2023/24, this is also the threshold for paying 45% tax (reduced from £150,000).

3. Corporation Tax

Confirmation of corporation tax rate increase from 19% to 25% from 1 April 2023 on profits over £250,000 and marginal rate of 26.5% on profits between £50,000 and £250,000.

Since 1 April 2017, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced at 19% for companies with profits of up to £50,000. Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5% on profits between these limits, but an average rate on all profits of between 19% and 25%. The limits will be divided between companies that have been under common control at any time in the previous 12 months, whether UK resident or not. Companies with an accounting period that straddles 31 March 2023 will time apportion the profits of that period to be taxed at the two different rates.

4. Capital Allowances for plant and machinery

Super-deduction’ for plant and machinery (P&M) bought by companies up to 31 March 2023 replaced by 100% first-year allowance for qualifying capital expenditure, without upper limit, for three years from 1 April 2023.

The Chancellor also said that he intended to make this relief ‘permanent’ as soon as it was prudent to do so. New ‘special rate’ P&M assets will qualify for a 50% first year allowance (FYA) in the same period.

The 100% Annual Investment Allowance (AIA), which is available to unincorporated businesses as well as companies, is confirmed at £1 million a year ‘permanently’. This has the same effect as a 100% FYA, but it covers some special rate assets as well as general plant and machinery. It also applies to the purchase of second-hand P&M, whereas the super-deduction and new FYA are for investment in new assets. With limited exceptions, cars do not qualify for the new FYA or the AIA.

5. Seed Enterprise Investment Scheme (SEIS)

The generosity of the SEIS will be increased with effect from 6 April 2023. The amount that companies will be able to raise will increase from £150,000 to £250,000; the gross asset limit will be raised from £200,000 to £350,000, and the age limit on a qualifying trade will be increased from 2 to 3 years. The annual limit for investors will be doubled to £200,000.

6. National Living Wage and National Minimum Wage

The National Living Wage will increase by 9.7% for individuals aged 23 and over to £10.42 per hour from 1 April 2023. Other rates of National Living Wage will rise from the same date by different percentages.

How we can support you

We have created a dedicated Budget Hub which includes our Budget Summary as well as video reactions from our team.

Our team will be happy to help you adapt and reassess your plans in light of any legislative changes. And our colleagues at Carpenter Box Financial Advisers are always on hand to help manage your investments and pensions.

For more information, please visit www.carpenterbox.com or call 01903 234094.