What the Chancellor’s Budget announcement means for individuals

The Chancellor had previously stated he would like to cut taxes when public finances allow.  That time is clearly not now but the Jeremy Hunt did announce some significant relaxations to pension savings in an attempt to keep more people working for longer.  Beyond that, there were no significant personal tax cuts which are likely to be saved for closer to the general election.

What the LTA and Annual Allowance changes really means for you

Thank you to those who attended our Lifetime Allowance and Annual Allowance webinar. We hope you enjoyed the session.

For anyone who couldn't attend, or if you would like to revisit the session, you can watch the session below.

Pension Change

The Chancellor went further than most expected by increasing the Annual Allowance, the amount people can save into pensions tax-efficiently each year, by 50% from £40,000 to £60,000 and abolishing the Lifetime Allowance altogether. Rumours had circulated regarding these two changes, but few anticipated a full abolition of the Lifetime Allowance (LTA).

Whilst we know this change was primarily targeted at senior doctors, many of whom are already over the LTA and seeing regular Annual Allowance breaches, it has positive and wide-reaching implications for non-medical professionals and business owners alike.

It is expected that many will now take advantages of the increased pension funding opportunity, not only due to the tax relief available on such contributions, but also due to the IHT benefits associated with pension funds and to shelter funds from the tightening of the Income Tax and Capital Gains Tax regimes described further below.

Those who have previously stopped paying into their pension on account of being close to or in excess of the Lifetime Allowance, will now consider funding again– even making some contributions before these changes take effect on 6th April 2023. There will also be renewed opportunities for business owners to use pensions as a tax-efficient profit extraction and remuneration tool.

The only disappointment in today’s pension announcements is the decision to retain the tapering of the Annual Allowance for higher earners (broadly speaking those earning in excess of £200,000 per annum). The ongoing existence of the Tapered Annual will mean that those individuals caught by the tapering will have vastly different retirement planning opportunities to those who fall beneath the relevant thresholds. In maintaining this awkward threshold, the government does still create a disincentive to working more for certain individuals.   

Annual Dividend Allowance and CGT Exemption

After the significant Income Tax changes in the Autumn Statement, taxpayers will be relieved that there were no further direct changes announced in the Budget.  This does leave the previously announce reductions to the Dividend Allowance and Capital Gains Tax Annual Exemption still to come into force – the reduction to these tax-free amounts is being staggered over two years and will have the inevitable consequence of forcing those with even modest investment income or gains to complete a tax return.

By way of reminder, the Dividend Allowance – the amount at which dividend income can be received free of tax – will reduce from £2,000 to £1,000 in April 2023; before reducing further in April 2024 to £500.   And the Capital Gains Tax Annual Exempt amount will reduce from of £12,300 to £6,000 in April 2023; and then to £3,000 from April 2024.

Other Announcements

There were no other significant announcements despite rumours circulating about changes to the beneficial regime available to non-domiciled individuals in the run-up to the Budget.  That might be one for the future.

In relation to Inheritance Tax, we learned that Agricultural Property Relief and Woodlands Relief will be restricted to UK situs property from April 2024, with a Consultation to be launched to explore whether the former should be extended to cover certain types of environmental land management. 

We are also informed that the Government will takes steps to ease the administration burden on Trustees by both formalising the existing reporting concession for low-income trusts and updating the Inheritance Tax reporting requirements for non-taxable chargeable events.

Get in touch

Following the announcements today, and the significant changes being introduced, it is important to review your pension plans and where appropriate speak with an adviser to ensure you make the most of the new allowances available to you in the most tax efficient manner.

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