As we near the end of April, the 2023 Spring Budget is well and truly underway.
The red briefcase is packed away, Chancellor Jeremy Hunt has finished his daytime TV rounds and parliament is getting down to the business of looking at this year’s Finance Bill. Now the dust has settled, let’s look at what the recent announcement could mean for your wealth.
Politics is in the eye of the beholder
In announcing the Budget, the Chancellor emphasised pro-business tax and employment measures. The Government seeks to reward businesses that invest and innovate, recognising how they support growth.
Critics argue that this benefits only a small section of society, as typical household disposable incomes are on track to remain lower than before the pandemic.
Irrespective of your political persuasions, it’s fair to say that Jeremy Hunt announced some eye-catching measures. Several of which are likely to have a direct or an indirect impact on your wealth.
If you’re an entrepreneur, you may already know that a £27bn chest of tax relief has been established for the next three years, starting 1 April 2023. This is designed to bolster UK companies and kick-start economic growth.
In practical terms, it includes “full expensing” for capital allowances. It means that businesses can write off the cost of certain capital spending against taxable profits, therefore reducing overall tax bills.
There is also a 50% first-year allowance. This enables taxpayers to deduct 50% off certain plants and machinery, such as solar panels and lighting systems, from their profits during the year of purchase.
The Office for Budget Responsibility predicts that these policies will increase business investment by 3% per year that the programme exists.
Perhaps the most headline-worthy announcement was also the biggest surprise. I’m referring here to the end of the £1m lifetime allowance (LTA) on pension savings.
Before 6 April 2023, if you withdrew any pension savings above the £1,073,100 limit, you would be taxed at up to 55%. After that date, this is no longer the case.
There is also a change to the annual limit on pension contributions that attract tax relief. It was £40,000 but the Chancellor has raised it to £60,000. For high earners, the threshold at which a tapered tax-free allowance kicks in has also risen (from £240,000 to £260,000).
Other pensions measures include an increase to the amount people can top their defined contribution pension up by – while claiming an income from it at the same time.
Aside from the tax components of pension saving, there was nothing new about taxation in this year’s Spring Budget.
On reflection, this probably isn’t a surprise. After all, with inflation at record highs, the last thing the Treasury wants is anything that could contribute to further price rises – and tax cuts often do.
It is worth remembering, though, that the basic and high tax rates have been frozen until 2028. So, if your salary is rising, your tax contributions are likely to as well.
Moreover, from 6 April 2024, the additional rate tax threshold (of 45%) will fall from £150,000 to £125,140. More people are likely to pay the higher rate of tax as a result.
A further change we already knew about – but is nonetheless worth remembering – is the fall in the capital gains tax (CGT) annual allowance from £12,300 to £6,000 on 6 April 2023 (this will be halved again to £3,000 from 6 April 2024).
Like tax, the Chancellor didn’t make many updates to investing in the Spring Budget.
One change he did make, however, is an increase in bonds being issued. A useful, low risk home for cash has always been National Savings & Investments. This government bank has been tasked with issuing more premium and savings bonds.
Overall, it’s a budget for business – from a government accused just five years ago of not being sufficiently pro-business.
This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.