Chancellor Jeremy Hunt delivered his spring Budget last month (15 March) and announced several surprising changes to pension legislation. In a Budget designed to boost economic growth, business owners were also watching on keenly.
Keep reading for your look at some of the main announcements and how they might affect your plans for the rest of 2023 and beyond.
1. Businesses with the highest profits will see a rise in the Corporation Tax they pay
An April 2023 rise in Corporation Tax was first announced by Jeremy Hunt’s predecessor and now boss, Rishi Sunak, back in 2021.
The chancellor confirmed that the most profitable companies – those making more than £250,000 in profits – will pay 25% Corporation Tax, up from 19%, for the 2023/24 tax year.
Companies with profits below £50,000 will continue to pay 19%, while there is marginal relief for businesses with profits between £50,000 and £250,000.
If your business is likely to be stung by a higher tax rate, you’ll likely already know that the chancellor looked to soften the blow of a tax increase. Hunt announced that businesses will be able to offset 100% of their UK investment in IT equipment, plant, and machinery against profits. According to government figures, this is equivalent to a £9 billion a year cut in Corporation Tax that could become permanent once the UK economy is strong enough to support it.
The chancellor also announced that up to 12 regional “investment zones” will be set up, aiming to spur growth outside London. One potential investment zone is the East Midlands, with Greater Manchester and the north-east also in the running.
2. Surprise pension changes mean an end to the LTA… for now
During the coronavirus pandemic, more than 1 million UK employees opted to take early retirement. These pensioners joined 6 million working-age adults already classed as “economically inactive”.
Jeremy Hunt used his Budget to coax some of these former workers back into employment, by removing limits on pension savings.
Following pre-Budget talk of a rise to the Lifetime Allowance, Hunt made the controversial decision to scrap the LTA entirely.
The LTA is a limit on the amount you can withdraw from your pensions without paying an additional LTA charge, which could be as high as 55% on excess pension funds taken as a lump sum. The limit had stood at £1,073,100 and while there had been suggestions that it might rise to £1.8 million, it has been abolished… for now.
Labour was quick to confirm that they would look to reverse this decision if elected to government. The move also poses questions for those with any form of LTA protection.
Current uncertainty means that it might be too early to revisit or alter your retirement planning. It is, though, worth noting the other Annual Allowance changes that Jeremy Hunt announced.
3. The chancellor increased the tax-efficient pension contributions you can make
The Annual Allowance
The Annual Allowance is a limit on the pension contributions you can make each year while benefiting from tax relief. Tax relief is added to your contributions automatically at the basic rate of 20%. As a higher- or additional-rate taxpayer, you can also claim extra relief through your self-assessment tax return.
The Annual Allowance stood at £40,000 but has now been increased to £60,000 for the 2023/24 tax year. This effectively gives you an extra £20,000 of tax-efficient pension contributions to make, if you can afford to.
The Money Purchase Annual Allowance has also increased
If you begin taking pension benefits using certain flexible options, you might trigger the Money Purchase Annual Allowance (MPAA).
The MPAA significantly reduces your Annual Allowance, which could be especially important if you intend to take one pension pot while continuing to contribute to another.
The MPAA had stood at £4,000 but has now been increased to £10,000 from 6 April 2023.
A rise to the Tapered Annual Allowance
From 6 April 2023, the minimum Tapered Annual Allowance (TAA) will increase from £4,000 to £10,000. The “adjusted income” threshold for the TAA will also be increased from £240,000 to £260,000 from 6 April 2023.
The TAA reduces your Annual Allowance by £2 for every £1 your income exceeds this adjusted income amount.
The income level at which the test for tapering is first applied, known as your “threshold income” amount, remains at £200,000.
While the TAA previously applied to a minimum allowance of £4,000, this has now risen to £10,000 from April 2023.
The full impact of these changes remains to be seen
Jeremy Hunt’s spring Budget aimed to halve inflation, reduce public debt, and boost economic growth despite global instability.
The full impact of his growth plan might not be seen immediately. Boolers, though, remain on hand to help you achieve your goals whatever future legislative changes bring.
If you need help revisiting your business or retirement plans post-budget, get in touch now and see how our finance professionals can help you.
Get in touch
If you would like to discuss the impact of any of the chancellor’s spring Budget announcements on your long-term financial plan, please contact us today.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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