Houses of Parliament

The Spring Budget 2023 – The Key Announcements Affecting Personal Finances

We outline the key measures that will affect personal finances following the Spring Budget on 15th March 2023.

Pension Tax Relief

Savings

The current pension lifetime allowance (LTA) charge is to be abolished from 6th April 2023.

This is a big deal for high earners saving in a personal pension and the government hopes that these changes will keep people in work for longer before they retire, particularly Doctors.

Up to now, the LTA has caused some high earners, especially GPs, to retire early, as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded.

Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275.

The Chancellor also confirmed that the pension Annual Allowance (AA) will increase from £40,000 to £60,000 from 6th April 2023.

The Annual Allowance applies to the combined pension input by the individual and, in the case of employees, their employer.

Pension contributions exceeding the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the 3 previous tax years.

For those with high incomes, the AA is tapered. From 6th April 2023, where a taxpayer’s adjusted income exceeds £260,000 (increasing from £240,000), the AA is tapered by £1 for every £2 more than £260,000, down to a minimum of £10,000 (increasing from £4,000).

On 6th April 2023, The Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000. The MPAA replaces the Annual Allowance when an individual starts to flexibly access a defined contribution pension scheme.

Childcare Support Increased

Childcare

To help with soaring childcare costs, and to help parents to get back to work, the Chancellor announced an extension of 30 hours of free childcare to children aged 9 months to 2 in England.

Mr Hunt said all parents who work at least 16 hours per week will soon be able to claim 30 hours of childcare, for children aged between nine months and four.

The plans are being phased in on the following dates:

From April 2024: Working parents of two-year-olds will be able to access 15 hours of free care.

From September 2024: 15 hours will be extended to all children from 9 months upwards.

From September 2025: Every single working parent of under-fives will have access to 30 hours free childcare per week.

The provision of free childcare only applies within term-time – so 38 weeks of the year.

The government also announced that it will increase the hourly rate it pays childcare providers from September 2023. The minimum ratio of carers to children will increase in nurseries from 1:4 to 1:5 for two year olds.

The government also announced an Incentive payment of £600 for childminders signing up to the profession, rising to £1,200 for those who join through an agency.

For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum parents can claim will be increased around 50% to £951 for one child and £1,630 for two children.

Income Tax

Recurring Revenue

The personal allowance and basic rate band thresholds are now frozen in place until 5th April 2028.

So as earnings increase, individuals will move into higher tax bands.

This is often referred to as a stealth tax or ‘fiscal drag’ because it will raise more tax for the government without increasing income tax rates.

The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.

Summary table of key income tax rates and allowances for the tax year to 5 April 2024 (2023/24)

Tax Bands 2023-24

Other Allowances

Savings income continues to benefit from a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.

Dividend income will attract a £1,000 dividend allowance in 2023/24, down from the £2,000 allowance seen in previous years. These allowances are in addition to the personal allowance and attract a 0% rate of income tax.

Inheritance Tax

The inheritance tax nil rate band was frozen at £325,000 until April 2028, in the 2022 Autumn Statement,

The residence nil rate band will also remain at £175,000 and the residence nil rate band taper will continue to start at £2 million.

Energy Costs

For households, the Chancellor announced that the £2,500 Energy Price Guarantee (EPG) will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31st March 2024.

ISAs and Junior ISAs

There were no changes announced to the annual limits for Individual Savings Accounts (ISAs), Child Trust Funds or the Junior ISA. These limits will remain at £20,000, £9,000 and £9,000 respectively.

Capital Gains Tax

In the Autumn Statement 2022, the Chancellor announced that the £12,300 annual tax-free capital gains tax exemption (or allowance) will be reduced to just £6,000 in 2023/24 and only £3,000 in 2024/25.

This change will mean that those disposing of capital assets will pay more tax, where the new lower allowance is exceeded.

Benefits and State Pension

Pound Coins

The government will increase benefits, including the State Pension, paid to recipients in the tax year to 5th April 2024 by 10.1%.

This increase in the State Pension means that most pensioners will receive £10,600 in 2023/24, where they have 35 qualifying years.

If you are planning to claim the UK state pension, we urge you to check your National Insurance (NI) record for any NI contribution gaps before 31st July.

Normally it is only possible to make voluntary NI contributions for the past 6 tax years, but until 31st July 2023, it is possible to go back as far as 6 April 2006 and pay additional contributions at the 2022/23 Class 3 rate of £15.85 per week.

From 31st July 2023, the timeframe for making voluntary contributions will revert back to the normal six years.

National Minimum Wage Increase

From 1st April 2023, the National Minimum Wage Rates will be:

  • Over 23 £10.42
  • 21 to 22 £10.18
  • 18 to 20 £7.49
  • Under 18 £5.28
  • Apprentice £5.28

The Full Spring Budget 2023

We have outlined the key announcements affecting personal finances made by the Chancellor in the Spring Budget 2023. To see all the measures, visit the Government’s website to view the Budget in full.

Contact Leonherman’s Accounting Experts

If you have a question about any of the measures outlined by the Chancellor in the Spring Budget 2023, or if you think you need to act before April 2023, then don’t hesitate to let us know your query or call us on 0161 249 5040 to discuss your situation without delay with one of our team.

Important Disclaimer:

This material is published for client information. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by Leonherman.

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
READ NEXT...
To get a-head in business, subscribe