Spring Budget Update 2023

UK Spring budget update Swindon

Pensions

Download the latest update and tax tables here.

Lifetime allowance

The Chancellor announced today that from 6 April 2023 no-one will pay a lifetime allowance charge. From 6 April 2024, the lifetime allowance will be abolished and a future Finance Bill will remove the lifetime allowance completely from pensions tax legislation.

The current 55% charge on lifetime allowance excess lump sums, serious ill-health lump sums, defined benefits lump sum death benefits and uncrystallised funds lump sum death benefits will no longer apply. Instead, the amount that would have been taxed at 55% under current rules (i.e. the amount above the available lifetime allowance) will be subject to taxation at an individual’s marginal rate. This means pension providers must, for the time being at least, continue to carry out tests against an individual’s remaining lifetime allowance at each BCE to see if any portion of the payment needs to be taxed, and then apply tax at the individual’s marginal rate. There is no indication from the Government about how providers should tax individuals when they don’t have a tax code.

Pension commencement lump sums

The maximum pension commencement lump sum (PCLS) available is currently limited to the lower* of:

  • 25% of the value of the pension benefits being taken and
  • 25% of the member’s remaining lifetime allowance.

So the lifetime allowance directly impacts on the amount of (PCLS) an individual can take. As a result of the proposed abolition of the lifetime allowance the Chancellor announced that the current lifetime allowance of £1,073,100 will be used from 6 April 2023 onwards to set a frozen upper monetary cap of £268,275 on pension commencement lump sums, other than for individuals who already have a protected right to take a higher amount due to a valid lifetime allowance or pension commencement lump sum protection. 

It’s not yet clear how a protected PCLS will be calculated from 2024 onwards once the Lifetime allowance is abolished. Detail is expected in the future Finance Bill. 

*except where protections apply.

Annual allowance

The chancellor announced that the annual allowance, the limit on tax relievable pension savings an individual can make in a tax year, will increase from £40,000 to £60,000 from 6 April 2023.

In addition, the money purchase annual allowance – the limit on money purchase pension savings an individual can make after accessing benefits flexibly, will increase from £4,000 to £10,000 from 6 April 2023.

Finally, the minimum amount of the tapered annual allowance (which applies to high earners) will also increase from £4,000 to £10,000 from 6 April 2023. The adjusted income figure will also be uprated from £240,000 to £260,000. This means that individuals with both threshold income of more than £200,000 and adjusted income of £360,000 or more will have a tapered annual allowance of £10,000 in 2023/24.

Investments and tax ISA allowances

The adult ISA allowance will remain at £20,000 for the tax year 2023/24. The Junior ISA allowance and the Child Trust Fund allowance will also continue to be £9,000 in the upcoming tax year.

Starting rate for savings income

The band for the zero percent starting rate for savings will remain frozen at £5,000.

Trust taxation

From tax year 2024/25 onwards, trusts receiving income of up to £500 won’t pay income tax. Where the settlor has created more than one trust, this threshold will be the higher of £100 or £500 divided by the number of trusts the settlor has set up.

Currently discretionary trusts benefit from a £1,000 standard rate band, resulting in the first £1,000 of income being taxed at the basic rate of 20% or the dividend ordinary rate of 8.75%. This standard rate band will be abolished from the tax year 2024/25.

Corporation tax

As previously announced, the main rate of corporation tax will rise to 25% and the small profits rate will be 19% for the financial year beginning on 1 April 2023 and the rates will remain at these levels in the following financial year too. 

Posted in
ifa-logo

Money News

If the prediction proves correct, it would mean a typical annual bill could be £500 lower than last summer.

Debt Relief Orders are available to those on low incomes to clear existing debt and surged as the fee was axed.

Jeremy Hunt promises further tax cuts, as he launches an attack on Labour's plans ahead of an election.

More homeowners are facing the first stage of the repossession process, new figures indicate.