Spring Budget 2023

The Spring Budget 2023 included pension measures that went further than recent rumours suggested, when Chancellor Jeremy Hunt announced the abolition of the pensions Lifetime Allowance alongside increases to the Annual Allowance, Money Purchase Annual Allowance and the Adjusted Income limit and minimum level for the Tapered Annual Allowance.

All measures remain potentially subject to change until enacted into legislation.

The headlines are summarised below, if you have any questions or would like to speak to one of our expert financial advisers about the changes announced, contact us to arrange a free initial consultation.

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Pensions

Lifetime Allowance (LTA)

From April 2023 no-one will face an LTA charge irrespective of the level of their pension benefits, and from April 2024 the LTA will be abolished.

From April 2023, maximum Pension Commencement Lump Sum (PCLS) / Tax Free Cash (TFC) will be limited to 25% of the current £1,073,100 LTA to give maximum PCLS of £268,275, except where protections apply.

Where the following lump sums are currently subject to a 55% tax charge above the LTA, this will change to taxation at the individual’s marginal rate - LTA excess lump sum, serious ill-health lump sum (SIHLS), Defined Benefits Lump Sum Death Benefit (DBLSDB), and Uncrystallised Funds Lump Sum Death Benefit (UFLSDB).

Legislation will be introduced in a future Finance Bill to remove the LTA from pensions tax legislation.

Annual Allowance (AA)

From April 2023 the AA will increase to £60,000 (from the current £40,000).

From April 2023, different Public Service Pension Schemes (PSPS) for each public service workforce (for example, the 1995, 2008 and 2015 NHS Pension Schemes) are to be treated as one arrangement for the purposes of calculating the Pension Input Amount for testing against the Annual Allowance (but only where the arrangements are for the same workforce).

Money Purchase Annual Allowance (MPAA)

From April 2023, the MPAA increases from £4,000 back to its original level of £10,000. The MPAA is triggered when a money purchase pension plan is flexibly accessed with the MPAA applying from the date of trigger onwards.

Tapered Annual Allowance (TAA)

From April 2023 the adjusted income level for the TAA to apply will increase from £240,000 to £260,000.

The TAA minimum increases from £4,000 to its original £10,000.

Enhanced midlife MOT

The government will provide an enhanced digital midlife MOT offer and expand the Job Centre Plus midlife MOT offer, which provides in-person financial planning and awareness session for Universal Credit claimants aged over 50.

Investments

Individual Savings Accounts (ISA)

The annual subscription limit remains at £20,000 for 2023/24.

Seed Enterprise Investment Scheme (SEIS)

From April, the existing limits that apply to company access and use of the SEIS and the investment amounts on which individuals can claim tax reliefs are increasing.

The company investment limit will increase from £150,000 to £250,000, the limit at the date of share issue on a company’s 'gross assets' will increase from £200,000 to £350,000 and the age limit of a company’s 'new qualifying trade' from 2 to 3 years.

The annual limits that apply to the investment amount on which individuals can claim income tax and Capital Gains Tax re-investment reliefs will also increase from £100,000 to £200,000.

Real Estate Investment Trusts

Amendments to the Real Estate Investment Trust (REIT) regime to enhance its competitiveness.

These changes:

• Remove the requirement for a REIT to hold a minimum of three properties where it holds a single commercial property worth £20m or more.
• Amend the rule that deems a disposal of property within 3 years of being significantly developed to be outside the property rental business.
• Amend the rules for deduction of tax from property income distributions paid to partnerships.

Company Share Option Plan (CSOP)

Changes to the Company Share Option Plan (CSOP), a tax-advantaged employee share scheme available to all UK companies and their employees.

The employee share options limit will be doubled from £30,000 to £60,000.

The ‘worth having’ condition, which limits which types of shares are eligible for inclusion within a CSOP scheme, will be removed.

Taxation

Simplifying and modernising HMRC's Income Tax services through the tax administration framework.

A discussion document has been published which explores how HMRC can simplify and modernise HMRC’s Income Tax services as part of its Tax Administration Framework Review. It sets out HMRC’s intention to move to a digital by default approach for some of its outputs, seeks views on improving Pay As You Earn (PAYE) processes, and launches a review of the Income Tax Self Assessment criteria.

This document may be of interest to taxpayers in PAYE and Self Assessment and HMRC welcomes views from anyone with an interest in how HMRC administers Income Tax through these regimes.

Simplifications for trusts and estates

Trustees and personal representatives of estates will no longer have to report small amounts of income tax to HMRC and that taxation of estate beneficiaries will be simplified, as shown below:

• Trusts and estates with income up to £500 do not pay tax on that income as it arises.
• Removes the default basic rate and dividend ordinary rate of tax that applies to the first£1,000 slice of discretionary trust income.
• Provides that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the personal representatives.
• Makes technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly.

Raising standards in tax advice

This measure removes a taxpayer’s ability to legally assign to a third party their income tax repayment, or their right to an income tax repayment. The effect of this measure is that assignments of income tax repayments will have no legal effect and the repayment will remain the property of the taxpayer.

Restriction of Charitable Reliefs to UK Charities and Community Amateur Sports Clubs (CASCs)

This measure will ensure that only those charities and CASCs that come within the jurisdiction of the High Court in England, Wales or Northern Ireland, or the Court of Session in Scotland will qualify for UK charitable tax reliefs. This will also mean that CASCs must be based in the UK and provide facilities for eligible sports here to qualify for charitable relief.

This measure takes effect from 15 March 2023 for any charity or CASC that has not previously been accepted for charitable tax reliefs. For non-UK charities and CASCs that have previously been accepted for charitable tax reliefs at 15 March 2023 there will be a transitional period until April 2024. From April 2024, all non-UK charities and CASCs will no longer be eligible to claim UK charitable tax reliefs.

Other Budget measures

• 30 hours free childcare to be extended to children over the age of nine months, alongside boosts to subsidised childcare for parents on Universal Credit including upfront support.
• A £27 billion tax cut for business through ‘full expensing’ policy and capital allowances reform intended to drive investment and growth.
• Measures to ease the cost-of-living burden with extension of Energy Price Guarantee and duties on fuel and a pub pint both frozen.
• Major set of reforms to support people into work, removing barriers that stop those on benefits, older workers, and those with health conditions who want to work from working.

To better understand how these changes may affect you, we recommend speaking to a TPO Financial Adviser

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Please note: This summary has been prepared very rapidly and is for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. Investment returns are not guaranteed, and you may get back less than you originally invested.