Earlier today the Chancellor of the Exchequer, Jeremy Hunt, presented the Spring Budget 2023. Our private client team summarise the key changes that may affect you personally.
The Chancellor presented a positive picture of the economy, suggesting we would avoid a technical recession in 2023 and outlining the Government’s plans for growth. This budget for growth was presented in the form of 4 Pillars being investment in Enterprise, Employment, Education and Everywhere – ensuring that all parts of the UK benefit from the measures being implemented.
The main headline for private clients to be aware is that annual pension saving allowances and lifetime allowances will increase, in fact the lifetime savings allowance will increase from a little over £1M to being uncapped. There were a number of other changes which were not announced in the Budget speech but which have been included in the accompanying documentation. The Chancellor also confirmed that he is going ahead with the introduction of the much discussed 25% corporation tax rate.
The other point to note for non-domiciled clients is that there have been no changes announced with regards the remittance basis of taxation, none had been anticipated, but it’s always good for this to be confirmed!
Pension Tax Thresholds and Changes
Various changes were announced for pensions, most of which appear to be favourable for higher earners, these all come into effect from 6 April 2023.
Specifically, the annual savings allowance will increase from £40,000 to £60,000 per year, the minimum tapered allowance (and money purchase tapered allowance) will increase from £4,000 to £10,000 per year and the Lifetime Allowance (LTA) charge will be removed.
However, whilst there is no restriction on the amount which may accrue into a person’s pension, the Pension Commencement Lump Sum (i.e. tax free lump sum) will be restricted to the higher of 25% of the pot (as per the current rule) and £268,275. Therefore, for those who do not have historic pension protections and who accrue a pension pot in excess of £1,073,000 the tax free lump sum will be below 25%. Excess lump sum withdrawals will be taxed at the individual’s marginal rate rather than the current 55%.
Capital Gains Tax
Most changes in respect of capital gains tax are old news, announced in earlier budgets.
One important change taking place from 6 April 2023 is that there will be an extension to the time allowed to transfers of assets between spouses and civil partners who are in the process of separating. Broadly, under the old system in order for assets to be transferred free of tax this would need to happen in the year of separation, a restrictive rule clearly, this has been extended to a three year time frame.
There were however three previously unannounced changes worth bringing to clients’ attention.
The first is a proposal for provide a new elective accruals basis of taxation for carried interest. This will allow UK resident investment managers to accelerate their tax liabilities in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief. The measure will apply from 6 April 2022.
The second is that unconditional contracts are being targeted to remove a potential tax avoidance loophole. This is likely to affect only a small number of people, but for those that is does impact, there will now be subject to notification and assessment time limits set with reference to the tax year of accounting period when an asset is sold or transferred rather than the year the unconditional contract for the disposal was made.
Finally, hidden deep in the Budget announcements is the fact that from the tax year 2024/25 onwards the capital gains tax pages of the Self-Asessment tax return will be revised so that gains and losses declared in respect of cryptoassets are separately identified.
As a result it’s anticipated there will be enhanced scrutiny of crypto transactions by HMRC so taxpayers should ensure their reporting is all in order.
- The government will legislate that from 6 April 2023 only UK registered charities will qualify for tax reliefs and exemptions in the UK, although some transitional relief will apply until April 2024 for non-UK charities already accepted as qualifying for relief by HMRC. As a consequence, clients may want to review their charitable giving and make changes as appropriate.
- It was announced that there will be some restrictions to the availability of Agricultural Property Relief and Woodlands Relief from inheritance tax.
- The Government plan to simplify how income tax applies to trusts, estates and their beneficiaries with effect from 6 April 2024. Broadly these are to avoid trusts and estates with income of £500 paying income taxes.
If you want to discuss how these changes affect your circumstances, please do hesitate to contact us.