Budget 2023
We have summarised the key points relating to pensions and investments announced by the Chancellor in the Spring Budget on 15 March 2023.
Pensions
Lifetime allowance
The Chancellor announced today that from 6 April 2023 no-one will pay a lifetime allowance charge. From 6 April 2024, the lifetime allowance will be abolished and a future Finance Bill will remove the lifetime allowance completely from pensions tax legislation.
The current 55% charge on lifetime allowance excess lump sums, serious ill-health lump sums, defined benefits lump sum death benefits and uncrystallised funds lump sum death benefits will no longer apply. Instead, the amount that would have been taxed at 55% under current rules (i.e. the amount above the available lifetime allowance) will be subject to taxation at an individual’s marginal rate. This means pension providers must, for the time being at least, continue to carry out tests against an individual’s remaining lifetime allowance at each BCE to see if any portion of the payment needs to be taxed, and then apply tax at the individual’s marginal rate. There is no indication from the Government about how providers should tax individuals when they don’t have a tax code.
Pension commencement lump sums
The maximum pension commencement lump sum (PCLS) available is currently limited to the lower* of:
- 25% of the value of the pension benefits being taken and
- 25% of the member’s remaining lifetime
So the lifetime allowance directly impacts on the amount of (PCLS) an individual can take. As a result of the proposed abolition of the lifetime allowance the Chancellor announced that the current lifetime allowance of £1,073,100 will be used from 6 April 2023 onwards to set a frozen upper monetary cap of £268,275 on pension commencement lump sums, other than for individuals who already have a protected right to take a higher amount due to a valid lifetime allowance or pension commencement lump sum protection.
It’s not yet clear how a protected PCLS will be calculated from 2024 onwards once the Lifetime allowance is abolished. Detail is expected in the future Finance Bill.
* except where protections apply.
Annual allowance
The chancellor announced that the annual allowance, the limit on tax relievable pension savings an individual can make in a tax year, will increase from £40,000 to £60,000 from 6 April 2023.
In addition, the money purchase annual allowance – the limit on money purchase pension savings an individual can make after accessing benefits flexibly, will increase from £4,000 to £10,000 from 6 April 2023.
Finally, the minimum amount of the tapered annual allowance (which applies to high earners) will also increase from £4,000 to £10,000 from 6 April 2023. The adjusted income figure will also be uprated from £240,000 to £260,000. This means that individuals with both threshold income of more than
£200,000 and adjusted income of £360,000 or more will have a tapered annual allowance of £10,000 in 2023/24.
Investments and tax
ISA allowances
The adult ISA allowance will remain at £20,000 for the tax year 2023/24. The Junior ISA allowance and the Child Trust Fund allowance will also continue to be £9,000 in the upcoming tax year.
Starting rate for savings income
The band for the zero percent starting rate for savings will remain frozen at £5,000.
Trust taxation
From tax year 2024/25 onwards, trusts receiving income of up to £500 won’t pay income tax. Where the settlor has created more than one trust, this threshold will be the higher of £100 or £500 divided by the number of trusts the settlor has set up.
Currently discretionary trusts benefit from a £1,000 standard rate band, resulting in the first £1,000 of income being taxed at the basic rate of 20% or the dividend ordinary rate of 8.75%. This standard rate band will be abolished from the tax year 2024/25.
Corporation tax
As previously announced, the main rate of corporation tax will rise to 25% and the small profits rate will be 19% for the financial year beginning on 1 April 2023 and the rates will remain at these levels in the following financial year too.
2023/24 allowances and rates
Tax year 2023/24 | Tax year 2022/23 | |
Income tax – allowances | ||
Personal Allowance* | £12,570 | £12,570 |
Income limit for personal allowance | £100,000 | £100,000 |
Marriage allowance | £1,260 | £1,260 |
Dividend allowance | £1,000 | £2,000 |
Personal savings allowance- basic rate taxpayer | £1,000 | £1,000 |
Personal savings allowance – higher rate taxpayer | £500 | £500 |
Personal savings allowance – additional rate taxpayer | Nil | Nil |
* Reduced by £1 for every £2 of income over £100,000 | ||
Tax year 2023/24 | Tax year 2022/23 | |
Rest of UK income tax – rates | ||
Basic | 20% | 20% |
Higher | 40% | 40% |
Additional | 45% | 45% |
Scottish income tax – rates*** | ||
Starter | 19% | 19% |
Basic | 20% | 20% |
Intermediate | 21% | 21% |
Higher | 42% | 41% |
Top | 47% | 46% |
Welsh income tax – UK rates apply | ||
Savings rates |
Starting rate – limit first £5,000 of savings income | 0% | 0% |
Savings rate – basic rate | 20% | 20% |
Savings rate – higher rate | 40% | 40% |
Savings rate – additional rate | 45% | 45% |
Dividend rates | ||
Ordinary rate | 8.75% | 8.75% |
Upper rate | 33.75% | 33.75% |
Additional rate | 39.35% | 39.35% |
Tax year 2023/24 | Tax year 2022/23 | |
Rest of UK (including Wales) income tax - bands | ||
Basic rate | £37,700 | £37,700 |
Higher rate | £37,701 - £125,140 | £37,701 - £150,000 |
Additional rate | Over £125,140 | Over £150,000 |
Scottish income tax – bands*** | ||
Personal allowance | £12,570 | £12,570 |
Starter rate | £12,571 - £14,732 | £12,571 - £14,732 |
Basic rate | £14,733 - £25,688 | £14,733 - £25,688 |
Intermediate rate | £25,689 - £43,662 | £25,689 -£43,662 |
Higher rate | £43,663 - £125,140 | £43,663 - £150,000 |
Top rate | Over £125,140 | Over 150,000 |
Rate applicable to discretionary trusts | ||
First £1,000 of income | 8.75% for dividend income or 20% for other income | 8.75% for dividend income or 20% for other income |
Rate applicable to trusts | 45% | 45% |
Dividend rate | 39.35% | 39.35% |
Tax year 2023/34 | Tax year 2022/23 | |
Pensions tax | ||
Standard lifetime allowance | £1,073,100 | £1,073,100 |
Annual allowance | £60,000**** | £40,000 |
Money purchase annual allowance | £10,000 | £4,000 |
**** Reduced by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000. | ||
Capital gains tax | ||
Annual exemption (individuals and personal representatives) | £6,000 | £12,300 |
Annual exemption (trustees) | £3,000 | £6,150 |
Basic rate (other than residential property) | 10% | 10% |
Basic rate (residential property) | 18% | 18% |
Higher rate (other than residential property) | 20% | 20% |
Higher rate (residential property) | 28% | 28% |
Trust rate (other than residential property) | 20% | 20% |
Trust rate (residential property) | 28% | 28% |
Inheritance tax | ||
Rate | 40% | 40% |
Nil rate band | £325,000 | £325,000 |
Residence nil rate band | £175,000 | £175,000 |
ISA thresholds | ||
Maximum investment | £20,000 | £20,000 |
Junior ISAs | £9,000 | £9,000 |
Tax year 2023/24 | Tax year 2022/23 | |
Class 1 National insurance thresholds |
Weekly Lower earnings limit (LEL) | £123 | £123 |
Weekly Primary threshold (PT) | £242 | £242 |
Weekly Secondary threshold (ST) | £175 | £175 |
Class 1 National insurance rates | ||
Employee contribution rates | ||
Below LEL | 0% | 0% |
Between LEL and PT | 0% | 0% |
Between PT and UEL | 12% | 12% |
Above UEL | 2% | 2% |
Employer contribution rates | ||
Below ST | 0% | 0% |
Above ST***** | 13.8% | 13.8% |
***** Special rules for under 21 years old and apprentices under 25 years old |
Trust Registration
HMRC published guidance in relation to changes to the Trust Registration Service (TRS), including associated processes and definitions under 5MLD (5th Anti-Money Laundering Directive). Trustees must now use the HMRC TRS site to registration of affected trusts. These changes have affected a large number of existing trusts that are not currently registered and registration should have been completed by 1st September 2022.
Every care has been taken to ensure that this information is correct and in accordance with our understanding of the law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. This information is based on announcements made in the Autumn 2023 Budget.
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