2023 Spring Budget – What you may have missed
I doubt it will have escaped your attention that, on Wednesday 15 March, Jeremy Hunt delivered the first full Budget speech we have had since March 2021.
If you haven’t had the time or inclination to dig beyond the headlines, join me here for a whistlestop tour of the major tax changes impacting individuals and businesses.
No alarms and no surprises
The defining feature of this Budget was the absence of any startling announcements, and the Chancellor’s speech wasn’t heavily tax focused. Most of the key measures were trailed ahead of Budget Day. So, we can indulge in a collective sigh of relief… economic turmoil will have to come from somewhere other than the Government’s fiscal announcements for now.
An enduring theme has also emerged from this Budget, and that’s “fiscal drag”.
It seems that the Government’s strategy for raising tax revenues is to freeze and reduce existing tax allowances and thresholds, so that taxpayers will face an increasingly high tax burden as inflation runs its course.
We already knew from the Chancellor’s Autumn Statement in November 2022 that…
- The Income Tax personal allowance is going to remain unchanged at £12,570 until April 2028.
- The threshold for paying the 45% top rate of Income Tax will reduce from £150,000 to £125,140 from 6 April 2023.
- The Capital Gains Tax annual exemption will effectively be halved, from £12,300 to £6,000, from 6 April 2023, and then halved again to £3,000 from 6 April 2024.
- The Inheritance Tax nil rate band of £325,000 (and residence nil rate band of £175,000) will be frozen until April 2028.
These measures are not news exactly but will have a large impact, particularly over time.
The long-service award goes to the Inheritance Tax nil rate band, which has already been languishing at £325,000 for over 10 years now.
Jeremy Hunt’s showstopper announcement was the removal of the Lifetime Allowance for pensions, although this was widely signalled before the big day.
The Lifetime Allowance, which is now set to disappear from 6 April 2023, dates to the Gordon Brown era and is presently set at £1,073,100.
Since 2006, pension savings in excess of the allowance have been taxed punitively; at 55% when taken as a lump sum, or 25% when drawn as a pension.
The banishment of the Lifetime Allowance is intended to give us all a shot in the arm, by coaxing senior doctors back from early retirement. And I am sure few would disagree that the NHS could benefit from more doctors in circulation.
It is not only the doctors who stand to benefit from the Chancellor’s pension bonanza though. Anyone with a sizeable pension can now take the opportunity to add to their pension savings without worrying about the Lifetime Allowance charge, and this is a welcome simplification. In the process, the Chancellor has of course exposed himself to criticism for targeting tax giveaways at wealthy savers.
That said, if you are a high earner and your pulse is starting to race, you might want to curb your enthusiasm. The Lifetime Allowance is being abolished from 6 April 2023. But the maximum amount you can pay into your pension each year (the Annual Allowance) is only set to increase from £40,000 to £60,000 for middle income earners, and from £4,000 to £10,000 for high earners. Faced with these limits, you would have been lucky to brush against the old Lifetime Allowance anyway.
Back to business
The headline rate of Corporation Tax will still increase from 19% to 25% from 1 April 2023. So, there is no let up here, even though the Chancellor says he wants the UK to have the most competitive tax regime of any major country.
The 19% tax rate will still apply to “small companies” with taxable profits below £50,000, and a marginal rate will apply to companies with profits between £50,000 and £250,000. “Associated companies” will have to split these Corporation Tax thresholds between them.
To soften the blow for large companies and encourage investment, the Chancellor announced a “full expensing” relief. Companies will be able to write-off 100% of their expenditure on new plant and machinery against profits. The 100% First Year Allowance will be available for at least the next three years. This is good news for manufacturers but may provide less comfort to service sector businesses spending little on qualifying plant and machinery.
With the imminent increase in Corporation Tax rates, the 100% First Year Allowance is a last-minute substitution for the 130% Capital Allowance “super deduction” that is due to end this month (130% relief at 19% being much the same as 100% relief at 25%). In many cases there will be no incentive to defer or accelerate capital expenditure.
Getting in the zone
As anticipated, the Chancellor also elaborated on his Investment Zone proposals. His intention is to create “knowledge-intensive growth clusters” to encourage investment and growth, particularly in green industries, digital technologies, life sciences, creative industries and advanced manufacturing.
Businesses established in Investment Zones will be able to benefit from £80 million of “interventions” over a five-year period, including Stamp Duty Land Tax relief, enhanced Capital Allowances and some relief from Class 1 Employer National Insurance Contributions.
I am sorry to conclude with the unfortunate news that none of the proposed Investment Zones happen to be in East Anglia.