The Spring Budget | What it means for you
In keeping with the time of year, the Spring Budget was all about initiative, growth, renewables and regeneration. It was also focused on getting people to stay in work for longer. Changes to pension tax limits could mean people retire later than they had originally planned. Higher-rate earners who may have originally planned to retire early may now have to rethink this.
Let’s look at some of the key measures which could be relevant to you.
Pension allowances
The Lifetime Allowance
The big (and unexpected) news in the Budget announcement was around the Lifetime Allowance. This was previously set at (£1,073,100) but will be disposed of in April 2023. However the maximum for tax free cash will remain at 25% of the current Lifetime Allowance1/2. The previous Lifetime Allowance meant people with larger pensions funds (especially those in Final Salary Pensions like the NHS Pension) had to pay tax on pension savings exceeding this amount with many people choosing to retire earlier so as not to be subject to this taxation. The new measures abolish the Lifetime Allowance completely (it was previously thought it would increase to £1.8 million) and will act as incentive to higher earners including those on NHS contracts (for example, consultants and surgeons) to stay in work for longer3.
It’s worth revisiting plans to retire before 5th April this year as you may want to delay your retirement so as not to miss out on the removal of the Lifetime Allowance charge from 6th April 20234.
Annual Allowance
The annual pension allowance is set to increase from £40,000 to £60,000 a year from 6th April 20235. You can claim back unused amounts from the past three years which would equate to £180,0006 (£40,000 x 3 + £60,000 (this tax year’s allowance)).
Inheritance Tax
Inheritance Tax is set to remain the same at £325,0007. Your pension pot isn’t classed as part of your estate and is therefore exempt from Inheritance Tax if you die before 75. If you are over 75 when you die, your beneficiaries will be liable for tax on any pension income received as their earnings8.
It’s worth talking to one of our Independent Financial Advisers if you are planning on distributing more of your wealth into your pension (due to recent developments in pension allowances), as your Inheritance Tax planning may need an overhaul.
Personal Tax Allowance
Personal tax allowance stays the same at £12,570 for lower rate taxpayers. The tax rate of 45% will reduce from £150,000 to £125,1409. The 40% threshold remains at £50,27010.
Capital Gains Tax
The annual exemption currently set at £12,300 will be reduced to £6,000 from 6th April this year and £3,000 from April 202411.
With the help of one of our Independent Financial Advisers you can review your pension planning or any other aspect of your financial planning in line with the recent measures.
- https://www.bmj.com/content/380/bmj.p625
- https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance
- https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits
- https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits
- https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings
- https://mcl.accountants/news/spring-budget-2023/#:~:text=No%20further%20changes%20were%20announced,current%20level%20until%20April%202028.
- https://www.gov.uk/government/publications/spring-budget-2023-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances
- https://www.lexology.com/library/detail.aspx?g=655df242-c51f-43db-80c5-609901d8b3be
- https://www.gov.uk/government/publications/reducing-the-annual-exempt-amount-for-capital-gains-tax/capital-gains-tax-annual-exempt-amount
- https://www.gov.uk/government/publications/changes-to-alcohol-duty-rates/alcohol-duty-rate-changes
- https://www.businesscar.co.uk/news/2023/march/budget-2023-fuel-duty-freeze-to-continue
Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain.
