2023 Spring Budget Overview

March 21, 2023

The much-anticipated Spring Budget announcement has left many trying to untangle what it all means for their bank balance. Jeremy Hunt revealed the government’s plans on the 15th March, billing it as a ‘Budget for Growth’. It suggests that there are still tough times ahead for many, with household expenses still expecting to rise but at a much slower rate compared to previous months. It also aims to tackle labour shortages and stimulate the economy by boosting local businesses.

We’ve broken down the key points you should be aware of, and how they may affect your finances.

Pensions and Savings

The lifetime allowance (LTA) charge for pensions will be removed from the 6th of April 2023, regardless of the level of pension benefits. From April 2024, LTA will be abolished all together. Currently you can save just over £1m, which impacts the pensions of wealthy savers. The change allows for high earners to save more in pensions and stay in work for longer. This is particularly targeted at keeping doctors and consultants in the NHS.

The annual allowance for pensions has also been increased from £40,000 to £60,000, meaning high earners can save more for a comfortable retirement. Some other key changes to pensions are:

  • Money Purchase Annual Allowance has increased from £4,000 to £10,000.
  • The adjusted income level for the Tapered Annual Allowance has increased from £240,000 to £260,000.
  • Maximum Pension Commencement Lump Sum is now limited to 25% of the current £1,073,100 LTA to give maximum PCLS of £268,275 unless you have a higher protected figure.

In terms of savings, the adult ISA annual subscription limit will remain the same at £20,000.

Income Tax

The spring budget has announced that trustees and personal representatives of estates will no longer need to report small amounts of income tax to HMRC, and taxation of beneficiaries will be simplified. This is all part of a move to modernise HMRC’s Income Tax services, for instance:

  • Trusts and estates with income up to £500 will no longer pay tax on that income as it arises.
  • Removal of the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 of discretionary trust income.
  • Beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the personal representatives.

It’s also important to remember that the changes to income tax levels announced in the 2022 Autumn statement have also come into effect. The highest earners will be paying 45% income tax on earnings above £125,140 from April 2023.

Tax cuts for businesses

Although corporation tax will increase from 19% to 25%, additional measures have been put in place to help boost small businesses and the economy, which effectively act as tax cuts for UK businesses. These include:

  • The annual investment allowance for small businesses is increasing to £1 million.
  • “Full expensing” has been introduced, meaning all money invested in new machinery and technology by a small business can be deducted in full from taxable profits.
  • Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%, but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

Other key announcements

Some additional measures that were announced to try and combat the cost of living crisis and grow the economy include:

  • 30 hours of free childcare for children over the age of 9 months, allowing more parents to go back to work.
  • The energy price guarantee (EPG) protects customers from increases in energy costs by limiting the amount suppliers can charger per unit for energy used. The EPG has been extended for an additional three months at its current level to the end of June. This will bring a typical household energy bill in Great Britain for dual-fuel gas and electricity down to around £2,500 per year and around £2,109 in Northern Ireland.
  • Fuel duty has been frozen to ease the burden of expensive petrol and diesel.
  • Financial planning and awareness sessions available to Universal Credit claimants over 50, and a push towards getting older people into the workforce.
  • A change in the way people are assessed for disability benefits.

What can we expect 2023 to look like financially?

Although the Office of Budget Responsibility (OBR) has predicted the UK will not technically enter a recession in 2024, many will still feel the pinch of growing costs, despite the rate of inflation being set to decrease to 2.9% by the end of the year. These latest changes suggest that despite a difficult year ahead, 2024 is looking brighter, especially for those putting a significant amount of money towards their pension.

If you are currently a client with GreenSky Wealth and would like to know more about how these announcements may affect your finances, please get in touch for a review. In addition, if you are looking for expert financial advice across pensions, investments, and portfolio management give us a call and we’d be happy to help.