Mar 16, 2023 | DARCY NEEDHAM-JONES
Whilst Jeremy Hunt called his first Statement, a ‘budget for growth’ no doubt with his eye on the country going to the polls in a general election by January 2025, he sprung a few surprises, most notably the scrapping of the lifetime allowance (LTA) on pension savings, effective from 6th April 2023. This is a big boost for pensions.
Press speculation ahead of the Statement suggested the LTA would look a lot like a spring lamb. It started at £1.5m in 2006, rose to £1.8m by 2012, was cut several times down to just £1m by 2017 with the expectation to now increase again to £1.8m from the current level of £1.073m. But the Chancellor surprised everyone by abolishing the pensions LTA as part of his measures to keep ‘experienced’ (aka older!) workers in employment as well as attracting early retirees back into the workforce.
There will also be an increase to the pensions annual allowance for contributions to £60,000 from currently £40,000, and the money purchase annual allowance to £10,000 from £4,000. Tapering of the annual allowance will still apply to those with a high income, but the minimum level of pension contributions will also increase from currently £4,000 to £10,000.
Pension tax relief is costly for the government, and to limit some of the cost, the maximum tax free cash withdrawal from a pension will be limited to 25% of the current LTA of £1.073m, unless previous protections are in place. But even so, the announced changes to pensions, along with the exemption of pensions savings from inheritance tax, should be good news for many Wealth clients.
The other main surprises related to the Office for Budget Responsibility’s economic forecasts, starting with the forecast that the UK economy is expected to escape recession this year with only a slight contraction in economic growth of 0.2% and inflation, as measured by CPI, forecast to be just 2.9% by the year end.
Of course, most of the bad news – the tax increases taking effect from 6 April 2023 – were announced back in the November Autumn Statement. A lowering in the 45% additional rate tax threshold to £125,000 a cut in the dividend allowance to £1,000, and the capital gains tax exemption to £6,000. The planned 50% cuts again in the dividend allowance and capital gains tax exemption from 6th April 2024, remain on the table along with the freezing of income tax allowances and tax bands to April 2028. Back door wealth taxation continues.
Click below to read the in-depth detail of the Spring Statement 2023, and don’t hesitate to contact us if you’d like to discuss anything.
READ OUR FULL SPRING STATEMENT SUMMARY HERE
Send an email to us at email@example.com