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Summary of today's Spring Budget 2023 announcements

15/03/2023

Well this year pensions were very much back in the spotlight!

Given the leaks published in the Daily Mail, The Times, and The Telegraph this week, the Chancellor’s announcements today that he is increasing the level of the pension annual allowance, and the money purchase annual allowance (MPAA), came as no surprise. What is a bit of a surprise though is that the changes will take effect from 6 April 2023, which gives very little time for the industry to prepare. What also wasn’t expected was that the Chancellor would abolish the lifetime allowance (LTA) altogether though! This had been leaked as increasing to £1.8m, so the actual announcement exceeded all expectations. To be clear, the LTA itself isn’t abolished straight away (that will come in a future Finance Bill, and possibly effective from 6 April 2024), but the Chancellor has effectively abolished it now by removing the Lifetime Allowance charge from 6 April 2023.

Leaked changes to pension allowances even made the national news earlier in the week and are primarily designed to take the heat out of the government’s disputes with public sector unions, including the BMA. As covered widely by the media, NHS senior clinicians and other senior public sector workers have been retiring early due to pension tax penalties, and have recently started taking high profile industrial action. It was also welcome news that the tapered annual allowance thresholds for high earners have been increased again from 6 April, effectively blunting this unpopular measure for all but the very highest earners.

However, the increase to the MPAA can largely be attributed to industry pressure and is excellent news. This limit, designed to stop recycling of flexibly accessed DC pension funds from getting a second slug of tax relief, was a barrier to the government’s aim of encouraging many over-55 retirees back to work. It will now allow those affected, many of whom will be auto-enrolled on returning to employment, to work and continue to contribute to a workplace pension at a more realistic level. It will also stop penalising those aged 55 and over who are working but need to dip into a DC pension fund to cover the cost of living, from sleepwalking into a situation where they are taxed on future DC saving in excess of just £4k a year.

Thankfully though, there were no changes announced to the State pension age, or the Normal Minimum Pension age for taking pension benefits. Industry pundits had feared that both might increase as a result of increasing pension allowances.

The other announcement very much in the political spotlight today was the news that the Chancellor has decided, despite a predicted Conservative back bench revolt, to push ahead with his rise in Corporation Tax from 19% to 25% from 6th April; although the rise is perhaps softened with some investment and capital allowance tax breaks for businesses, and the introduction of 12 new UK Investment Zones. All in all, definitely one of the less ‘boring’ Budgets we’ve seen recently!

As usual, Technical Team has been busy analysing in detail the Budget documents released since the Chancellor sat down this afternoon.

A detailed summary document of today’s Spring Budget announcements is attached. However, we’ve summarised the main headlines below:

Headlines

  • Lifetime Allowance - The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024. 
  • Tax free cash - The maximum Pension Commencement Lump Sum (PCLS) for those without protections will be retained at its current level of £268,275 and will be frozen thereafter.
  • Annual Allowance - The Annual Allowance will be raised to £60,000 from April 2023.
  • Money Purchase Annual Allowance - The Money Purchase Annual Allowance (MPAA) will increase to £10,000 from April 2023.
  • Tapered Annual Allowance - The minimum Tapered Annual Allowance will increase from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
  • Other Allowances - 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. 
  • Trusts - to simplify administration, the government will formalise and extend an existing income tax concession for low income trusts and estates and provide further changes to make calculations and reporting more straightforward. HMRC also intend to make changes to inheritance tax regulations to remove non-taxpaying trusts from reporting requirements. 
  • Public service pension schemes - Open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges, thus allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance. This will be legislated for through secondary legislation and will apply from April 2023 tax year.
  • Midlife MOT - The government will expand and improve the midlife MOT tool to support individuals with planning for later life across Great Britain, by: expanding the midlife MOT Jobcentre Plus offer to reach more 50+ claimants through support sessions; improving the digital midlife MOT tool; and working with employers and pension providers to encourage signposting to the midlife MOT and related support.

Important Information

Please note this is for general information only and is based on LV=’s understanding of the relevant legislation and regulations and may be subject to change.

The tax treatment of benefits depends on individual circumstances, and may be subject to change in the future.

The use of this document is at your own risk, and the content should not be used for the provision of professional advice.

LV= accept no liability for any damages, losses or causes of action of any nature arising from your use of this document.