We outline the key points of the UK's 2023 Budget and what's set to change from the new tax year in April.
With plenty of measures already hinted to the press before Jeremy Hunt’s first Budget on 15th March, there were few expectations of any headline-grabbing announcements.
One of the biggest surprises was the removal of the Lifetime Allowance for pensions from 6th April. Currently, you start paying tax penalties of 25% or 55% when you access funds if you have combined pension benefits of £1.07 million or more. It was expected that this threshold would be increased, but scrapping it altogether represents a significant tax saving for many retirees.
More pension reform
There are other significant pension tax relief measures taking effect from April, all designed to encourage people to build up their pensions and carry on working for longer:
- Tax-free pension annual allowance to go up by 50% – from £40,000 to £60,000.
- Increase in the money purchase annual allowance – you'll be able to pay up to £10,000 a year into a pension (subject to relevant earnings) even after having accessed pension benefits (this is up from £4,000).
- The tapered annual allowance will rise from £4,000 to £10,000 and will kick in at a higher adjusted income threshold – up from £240,000 to £260,000.
We explore more about the pension changes and why the government is so keen on undoing ‘the Great Retirement’ in this blog.
Other key points
Some other announcements from the Budget that may affect you and your family include:
- Freeze on fuel duty – 5p a litre – to continue until April 2024.
- Energy price guarantee – £2,500 cap on energy bills – to remain until July 2023.
- Childcare system reform – 30 hours of free childcare a week for under-fives… but not fully in place until September 2025.
When it comes to the state of the UK economy, there were a couple of surprises too. It’s now predicted that the UK will avoid recession in 2023 and will start to see growth next year. And UK inflation is expected to fall to 2.9% by the end of the year – a big drop from its current level of 10.1%. Welcome news for households and businesses across the UK.
Are you ready for the new tax year?
Don’t forget that some measures coming in with the new tax year had already been set in motion last year, which will translate into a higher tax bill for many people. From 6th April:
- Thresholds for income tax and inheritance tax allowances will not adjust with inflation, having been frozen until 2028 last autumn.
- The higher income tax rate threshold reduces from £150,000 to £125,140 (excluding Scotland).
- The dividends tax-free allowance will be halved to £1,000 (then halved again to £500 from April 2024).
- The annual exemption for capital gains tax drops from £12,300 to £6,000 (further reduced to £3,000 from April 2024).
With the tax year ending in just a couple of weeks, time’s running out to make sure you’re making the most of all the available allowances and reliefs for 2022/23, and that everything’s set up for the year ahead.
Contact us if you’d like to book in a financial planning review.
