The Chancellor, Jeremy Hunt, delivered his first budget today with a focus on getting the UK back to work.
Billed as a ‘growth budget’, the Chancellor wants to encourage workers back into the workforce by changing pension allowances, improving access to childcare and devoting more money to training.
The economic and fiscal outlook has brightened since the previous forecast in November, according to the Office for Budget Responsibility. In 2023, the economy is forecast to contract by 0.2%, instead of 1.4% as forecast in November.
Here’s our summary of the key points and what they mean for your finances.
Shock as Chancellor scraps Lifetime Pensions Allowance
In a surprise move, the Lifetime Allowance excess charge will be removed from 6 April 2023. In a future Finance Bill, the government will completely abolish the Lifetime Allowance (LTA) for tax years 2024/25 onwards.
The LTA is currently £1,073,100 so this will provide increased headroom for pension funding and growth. However, the maximum tax-free cash will remain at its current level of £268,275 except for those with existing forms of LTA protections.
The Annual Allowance will increase from £40,000 to £60,000 from 6 April 2023. Individuals will continue to have the option to carry forward unused Annual Allowances from the three previous tax years. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 and the minimum Tapered Annual Allowance will rise to £10,000 from £4,000.
Once an individual has flexibly drawn benefits from money purchase pensions, the total tax-relieved pensions savings they can make are capped by the Money Purchase Annual Allowance. This will rise from £4,000 to £10,000 – a welcome move.
These measures are designed to incentivise highly skilled individuals to remain in the labour market and for others to return to the labour market.
Free childcare extended
30 hours of weekly free childcare is being extended to parents of one and two-year-olds in England — where both parents are working. At present, parents of three and four-year-olds can claim 15 or 30 hours of free childcare a week during term-time.
The Chancellor also announced more funding for schools to provide wraparound care for school-age children, incentive payments of £600 for childminders joining the profession and an increase in the funding to nurseries of £204 million from this September rising to £288 million next year, an increase of 30%.
Energy Price Guarantee
The Energy Price Guarantee, which is protecting households by capping typical energy bills at £2,500, will be maintained at the same level for a further three months.
To increase resilience to future energy price shocks, the government is supporting investment in the energy system by launching Great British Nuclear to support new nuclear builds, making up to £20 billion available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years to encourage energy efficiency.
The move to give nuclear a green labelling, aligns the UK with the EU Green Taxonomy. Nuclear is a low carbon source of energy which is part of the solution to reach our net zero goals. Whilst nuclear does come with challenges, the urgency of reducing our carbon emissions in the next few years make it a necessary part of most net zero plans.
Income Tax
In the Autumn statement, the Chancellor reduced the threshold at which the top 45p rate becomes payable from £150,000 to £125,140 from April 2023. The tapering of the tax-free Personal Allowance means those with earnings from £100,000-£125,140 are effectively taxed at 60%.
With thresholds also frozen, this will be an effective tax increase for many as they are pushed into different brackets over the next 5-6 years.
Pension contributions & other tax-efficient investments (ISAs, Venture Capital Trusts, Enterprise Investment Schemes) will become even more important.
Capital Gains Tax threshold
Currently, the Capital Gains Tax (CGT) annual allowance is £12,300. CGT is payable on profits over the allowance – at 10% or 20% – plus an additional 8% if the gain is from residential property.
From 6 April, the CGT allowance will halve to £6,000. From April 2024, the allowance will halve again, from £6,000 to £3,000. This will bring more people into tax reporting and increase the administration burden.
Tax-free allowance for dividends
The dividend allowance will be cut from £2,000 to £1,000 from April 2023. From April 2024, it will then be reduced to £500.
This will affect you, if hold income-paying shares outside tax wrappers like ISAs and pensions, as well as costing limited company directors who are remunerated through dividends.
Inheritance Tax
The nil rate band threshold of £325,000 and residence nil rate band of £175,000 remain frozen until April 2028.
More families will have taxable estates over the next few years. IHT planning is still key for preserving your legacy.
Pensions ‘triple lock’ reinstated
The triple-lock on the state pension is reinstated for April 2023, meaning a 10.1% boost for pensioners.
The full annual amount of the new state pension will rise to £203.85 per week.
ISAs
ISA limits will be kept the same. The current limit is £20,000 for an ISA and £9,000 for a JISA. The £20,000 limit has been in place since 2017/18.
Fuel Duty
This will be frozen for another year, with the chancellor extending a 5p per litre cut introduced last year in the wake of rising prices following Russia’s invasion of Ukraine.
Alcohol Duty
The chancellor also confirmed that from August alcohol duty will be increased in line with inflation, ending a years-long freeze on the tax.
Further details
The team at EQ will continue to review the changes and their impacts over the coming days and weeks.
Please do get in touch if you have any questions or would like more information.
Katharine Lindley, Head of Advice
EQ Investors
