How does the 2023 Budget impact you and your finances?

On March 15, 2023, Chancellor, Jeremy Hunt, delivered the Spring Budget. The announcement revealed some significant changes to the UK financial landscape. These will impact individuals, families and businesses alike.

Some of the key announcements included:

• Pension Lifetime allowance to be abolished
• Increase to pension annual allowance from £40,000 to £60,000
• Money Purchase Annual Allowance (MPAA) increased from £4,000 to £10,000
• Corporation Tax to increase to 25%
• Extension of free childcare funding to children between 9 months and 2 years.

Key Takeaways From The 2023 Spring Budget

To help you get to grips with some of the latest changes we’ve gone into more detail below.

Pension Lifetime Allowance (LTA) Abolished

The government has announced the abolition of the Pension Lifetime Allowance (LTA). Currently individuals are charged a heavy tax on pension savings above a certain amount.

The announcement will see this allowance scrapped. Individuals will now be able to save as much as they can, without the worry of tax implications of exceeding limits. This is a significant change that will benefit those who are saving for their retirement. This change will also:

• Provide potential opportunity for pension savers nearing the LTA. This is because they may have held back pension savings in order to reassess their situation
• Potentially give even greater opportunities for using pensions as a generational planning vehicle. This is because individuals can leave more money in their pension pot to their heirs, without incurring extra charges as a result of the LTA.

Whilst largely good news, the devil will be in the detail. We are already seeing commentary that other restrictions will remain in place. This is particularly the case when it comes to the amount of tax free cash an individual can take.

Andrew Southgate
Senior Financial Planner

Pension Lifetime Allowance: The Impact On Life Cover

Historically most Group Life Insurance involves a scheme registered with HMRC. Because of this, it is added together with other benefits from HMRC-registered schemes, such as workplace pension schemes.

This means that currently any benefit from a registered Group Life policy counts towards an individuals LTA. At the moment this stands at £1,073,100 in 2022/23. Any benefits received above this figure are therefore subject to the Lifetime Allowance Tax of 55%. However, off the back of the latest announcement, this will no longer be the case. As a result we may see an increase in schemes being set up or switched to HMRC-registered trusts.

An alternative to a registered Group Life scheme is an excepted scheme, which would not be tested against the LTA. Although an alternative, they are more complicated. Especially with regards to inheritance tax rules, which apply to the discretionary trusts required during set up.

Pension Annual Allowance Increased

There will be an increase in the tax-relieved amount that individuals can contribute to their pensions. The amount has been raised by 50%, from £40,000 per year to £60,000.

This change provides individuals with greater funding opportunities for their pensions. It also means that many people will no longer need to worry about the complex and confusing ‘Carry Forward‘ legislation. A rule that allows individuals to make use of any unused pension contribution allowance from the previous three years.

Pension Money Purchase Annual Allowance (MPAA) Increased

The Money Purchase Annual Allowance (MPAA) is a limit on the amount of money that someone can contribute to their pension if they’ve already accessed it and started receiving an income. In Jeremy Hunt’s budget, he announced that this limit would be increased from an annual allowance of £4,000 to £10,000.

As a result, people over 55 will now have more flexibility in managing their pension funds and greater opportunities for tax planning. They can now contribute more money to their pension pots and receive tax relief, which can help them save more money for their retirement.

Corporation Tax Increase

Corporate Tax will rise from 19% to 25% starting from April 2023. For some companies this may be softened by capital expensing and enhanced research allowances.

It is worth noting even at 25% the UK retains the lowest headline corporation tax in the G7.

Extension Of Free Childcare Funding

30 hours free childcare will be expanded to now include one and two year olds. This will allow many more people to return to work far sooner.