Jeremy Hunt’s “Back to Work” Budget focussed on 4 Es: Enterprise, Employment, Education, Everywhere and aimed to balance stability and reduce debt while encouraging growth. But what tax changes were announced for individuals?
The overhaul of the pension tax allowances, giving an increase in the pension contributions and the surprising abolition of the pension lifetime allowance will be welcomed by many private clients. It would be good to see a commitment to keeping this new threshold instead of the yo-yo-ing of previous years.
The expansion of child care for children under three’s will be welcomed by many, although the delay in implementing this, whilst understandable, is frustrating for clients needing immediate help.
We’ve summarised these and some of the other main changes announced in the Spring Budget, together with some changes previously announced in September 2022. In all cases, the reference to spouse refers to spouses and civil partners.
Pensions reform
Annual Allowance
The annual allowance has been frozen at a maximum of £40,000 for a number of years but from 6 April 2023, that increases to £60,000. The point at which the new £60,000 annual allowance starts to be reduced because of income levels has also been increased. From 6 April 2023, the £60,000 allowance will not be subject to any taper until the adjusted income exceeds £260,000, and the minimum it can be reduced to will be £10,000.
Those already in receipt of a private pension were previously limited to contributing £4,000 back into the pension. From 6 April 2023, that too will increase to £10,000.
Lifetime Allowance
This was the maximum amount of pension savings an individual could build up over their lifetime without having to pay an additional charge, which would be at 55% if the money was taken as a lump sum, or at 25%, in addition to the income tax rate, if taken out gradually.
The tax charge will now be removed starting from April 2023 and abolished entirely from April 2024.
When the Lifetime Allowance was introduced in 2006, and each time it has been reduced, protections were offered to safeguard taxpayers whose pensions already exceeded the allowances, which often meant that no further pension contributions could be made. There will be no need for these protections after April 2023, although those with protections in place may be able to take a higher lump sum.
The maximum amount that could be taken as a tax-free lump sum when the pension starts was previously 25% of the available Lifetime Allowance at the time the lump sum was taken. There will now be a cap of £268,275 (which is 25% of the current Lifetime Allowance) unless there is a protected right to take a higher lump sum.
Childcare
The Government aims to provide parents with access to 30 hours of free childcare per week, for 38 weeks of the year, from when their child is 9 months old to when they start school. This will be rolled out as follows:
- From April 2024, parents of 2-year-olds can access 15 hours of childcare per week
- From September 2024, all working parents of children aged between 9 months and up to three years old can access 15 hours of childcare per week
- From September 2025, all working parents of children aged between 9 months and up to three years old can access 30 hours of childcare per week
In addition to this, for school-aged children, funding will be provided from September 2024 to set up wraparound childcare provision in schools.
For more information relating to these changes, please click here
In addition to these measures, the Government is also increasing the income tax relief available to foster carers and shared lives carers to £18,140, plus £375-450 per person cared for per week.
For more information relating to these changes, please follow this link here
Tax refunds
Individuals entitled to income tax repayments from HMRC can no longer assign the repayment to a business, accountancy firm or agent. The ability to legally assign their income tax repayment to a third party will be removed from 15 March 2023, so it will have no legal effect, and the repayment will remain the property of the taxpayer.
Capital Gains Tax – Separation and Divorce
For disposals on or after 6 April 2023, separating and divorcing couples will have 3 years after the year in which they cease to live together in which to make a no gain/no loss transfers of assets between themselves and unlimited time if the assets are subject to a formal divorce agreement.
There is also an option for a spouse who retains an interest in the former marital home to claim private residence relief when it is sold.
Individuals who have transferred their interest in the former matrimonial home to their ex-spouse, and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse.
Taxation of lump sum exit scheme for farmers
Payments received under the lump sum exit scheme, which relate to an eligible claim, will, from 6 April 2022, be subject to Capital Gains Tax and not Income Tax.
Seed Enterprise Investment Schemes
The limits on the size and age of the companies that can access the SEIS as well as on the amounts they can raise and on which investors can claim income tax and capital gains tax reliefs, have increased from 6 April 2023.
The ceiling that applies to the investment a company can raise in the relevant period and on which investors can claim relief is increased to £250,000, and “gross assets” of the company can have increased to £350,000.
The age limit that applies to the definition of a company’s “new qualifying trade” at the date of investment is increased to 3 years. The annual limits apply to the investment amount on which individuals can claim income tax, and CGT re-investment reliefs has increased to £200,000.
Savings Tax Relief – Frozen
The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax.
Annual subscription limits for Junior Individual Savings Accounts (ISA) and Child Trust Fund accounts will remain at £9,000, and the annual subscription limit for adult ISAs will remain at £20,000.
Home for Ukraine
Individuals, companies and charities receiving a “thank you” payment under the homes for Ukraine scheme are exempt from income tax and corporation tax.
Homes for Ukraine SDLT and ATED exemption
Companies who purchased UK residential property valued in excess of £500,000 to house those fleeing the conflict in Ukraine under the Home for Ukraine sponsorship scheme are exempt from ATED and the 15% Stamp Duty Land Tax charge from 1 April 2022. The ATED relief will apply only whilst the refugees are actually in occupation of the property.
Social investment tax relief
SITR will be allowed to expire in April 2023. New investments made on or after 6 April 2023 will no longer qualify for Income and Capital Gains Tax relief.
Gift Aid
Charity tax reliefs will be restricted to UK charities with effect from April 2023. EU and EEA charities that have previously registered with HMRC will continue to be so registered until April 2024. Although HMRC has not specifically announced, it could follow that gift aid will be restricted on gifts to non-UK charities from April 2024.
Previously Announced
The following were announced in the September 2022 budget statement:
- Personal tax thresholds, CGT, IHT etc. – limits are all frozen until 2028
- From April 2023, the rate at which people pay the additional rate of income tax, charged at 45%, will change from £150k to those earning over £125,140 (the figure at which personal allowances are fully abated)
- Corporation Tax to rise from 19% to 25% from 1 April 2023 for profits above £250,000
- National Insurance thresholds are frozen, and the Employment Allowance will be kept at £5,000
- Tax-free allowance for capital gains will reduce in 2023/24 from £12,300 to 6,000 and again to 3,000 in 2024/25. The limit above which gains must be reported to HMRC, regardless of whether there is tax to pay, rises to £50,000 of proceeds from April 2023
- Stamp Duty Land Tax cuts announced in the Mini-Budget Growth Plan will now be time-limited, ending on 31 March 2025
- The tax-free dividend allowance will be reduced to £1,000 in 2023/24 and then to £500 in 2024/25
- Married Couple’s Allowance and Blind Person’s Allowance increased by 10.1% for 2023/24
If you have any questions in relation to what we have mentioned above, please get in touch with your normal BHP contact.
