He was careful to headline with the Office of Budget Responsibility's forecast the UK economy will avoid a recession and, supported by action proposed and taken in his Spring Budget, he might have been tempted (but resisted) a rousing rendition of "Things can only get better" (adding "with a Conservative government").
For many of our clients, it is very much "business as usual" notwithstanding the Budget proposals (which have no material impact on Income Tax, Capital Gains Tax, Inheritance Tax or Stamp Duty Land Tax), but headline changes of particular interest are set out below.
Pensions
Legislation will be introduced in Finance Bill 2023 to:
- Increase the annual allowance from £40,000 to £60,000
- Increase the money purchase annual allowance from £4,000 to £10,000
- Increase the income level for the tapered annual allowance to apply from £240,000 to £260,000
- Abolish the lifetime allowance (LTA) so that nobody will face an LTA charge from April 2023
- Limit the maximum an individual can claim as a pension commencement lump sum (PCLS) to 25% of the current LTA (£268,275), except where protections apply
Where individuals are able to receive to a tax-free lump sum when they become entitled to their PCLS, the maximum amount that most individuals can claim as a PCLS is currently 25 per cent of their available LTA at the time this sum is taken. However, those individuals who already have a protected right to take a higher PCLS will continue be able to do so. For some individuals, lump sums which are tax-free up to the LTA are taxed at 55% on any amount taken above the LTA. This measure ensures that, in such cases, these lump sums are instead taxed at an individual's marginal rate of income tax.
These measures are intended to encourage those whose incomes are such that they are near their pension contributions limit to continue working rather than retiring to avoid being penalised in relation to their pension contributions. There is currently a tapering of the annual allowance which applies for individuals with an annual income in excess of £240,000, the effect of which is that individuals with an adjusted income of £312,000 or more are entitled to an annual allowance of only £4,000, and so impact of the chancellor's headline grabbing statement of his "abolition of lifetime allowance" will be limited.
Inheritance tax
The government will introduce legislation in Finance Bill 2023 to:
- Restrict the geographical scope of agricultural property relief and woodlands relief to property in the UK. Property located in the European Economic Area, the Channel Islands and the Isle of Man will be treated the same as other property located outside the UK. The changes will take effect from 6 April 2024
- Restrict UK charity tax reliefs and exemptions to UK charities and Community Amateur Sports Clubs (CASCs). The taxes affected are Income Tax, Capital Gains Tax, Corporation Tax, Inheritance Tax, Stamp Duty, SDLT, Stamp Duty Reserve Tax, Annual Tax on Enveloped Dwellings (ATED) and Diverted Profits Tax. This change will come into effect from 15 March 2023, and will apply UK-wide. There is a transitional period for non-UK charities and CASCs which HMRC has accepted qualify for charity tax reliefs will have a transitional period until April 2024
Capital Gains Tax
As announced previously, the government will legislate in Finance Bill 2023:
- To make changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. The changes will take effect for disposals made on or after 6 April 2023
- To address tax avoidance so that shares and securities in a non-UK company acquired in exchange for securities in a UK close company will be deemed to be located in the UK
This measure will have effect where an individual has a material interest in both the UK and the non-UK company and where the share exchanges are carried out on or after 17 November 2022.
Other previously announced measures
The government will legislate in Finance Bill 2023:
- To amend tax legislation to support the expansion of the Dormant Assets Scheme. For income tax purposes, the change will take effect from Royal Assent. For inheritance tax purposes the change will take effect from 6 June 2022 to align with the commencement date of the Dormant Assets Act 2022 [20 July 2020]
- To abolish the Office of Tax Simplification. The legislation will have effect from Royal Assent of Spring Finance Bill 2023 [23 September 2023]
A reminder of the previously announced tax rate changes which were announced in the Autumn Statement and are shortly coming into effect
- Income Tax and National Insurance: thresholds will remain at 2023-24 levels until April 2028
- Inheritance Tax: thresholds will remain at current level until April 2028
- Income Tax:
- reduce the dividend allowance from £2,000 to £1,000 from April 2023 and then £500 from April 2024
- the additional rate threshold will be reduced from £150,000 to £125,140 from April 2023
- Capital Gains Tax:
- the annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 then £3,000 from April 2024
- the period for no gain/no loss transfers will be increased to three years for couples that separate or divorce
- Corporation Tax: 19% rate for profits up to £50,000, tapering to main rate of 25% for profits over £250,000, from April 2023
What wasn't mentioned...
- A review or any proposed changes to the regime for the taxation of non UK domiciled individuals
- The introduction of a wealth tax
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
