16 Mar 4 Key Take-Aways of the Chancellor’s Spring Budget March 2023

The Chancellor’s Spring Budget announcement today (March 15 2023) focused on investment and growth, bringing good news for businesses and investors. The budget has implications for UK pensions and taxes, and for now, the country is avoiding a technical recession, with inflation expected to fall to 2.9% by the end of 2023. To help our clients stay informed, here are four key takeaways from the budget that UK families and businesses should be aware of.

1. Pension Tax Reform

Abolition of the Lifetime Allowance

In a surprise move, the Chancellor has abolished the Lifetime Allowance on pension pots altogether, saying the lifetime allowance will be scrapped to encourage people to stay in work longer.

Currently, the lifetime allowance limits the total amount a person can have in their pension. The maximum has been eroded from its peak in 2012 of £1.8  to just over £1m today.

Anything above this and they have to pay an additional tax charge of up to 55% on the excess when they access the pension. This will be a welcome change for those whose pots are already above the current limit or getting close to it.

Increased Annual Allowance

There was also welcome news for savers as the Pensions Annual Allowance will be increased by 50% from £40,000 to £60,000 per year. This will be a big boost for anyone who wants to reduce their tax burden through a sizable pension contribution.  It will bring long awaited respite to higher earners in Defined Benefit schemes such as NHS consultants who were being hit by tax charges on their employer pension contributions. This has forced some to cut their hours or quit altogether causing a strain on the Health Service.

In addition to the 50% rise in the Annual Allowance the Money Purchase Annual Allowance (MPAA) has increased from £4,000 to £10,000, meaning people who have drawn income from their pension can from April 2023 contribute £10,000 a year. An increase of over 1000% from the current £4,000.

The removal of a cap on pensions, coupled with other incentives aimed at keeping seniors actively employed for longer, could result in delayed retirement plans for some. If these changes are likely to affect you, our team can help adjust your pension to suit your personal circumstances.

2. Investment Opportunities

The UK’s 2023 Budget announcements have created a range of exciting investment opportunities in the country. The big winners are:

Renewable Energy: The UK is already a world leader in offshore wind power. With its commitment to achieving net-zero carbon emissions by 2050, the government has announced it will invest £20 billion in low-carbon energy projects, focussed predominantly on carbon capture, usage and storage (CCUS). This is expected to support up to 50,000 jobs, attract private sector investment and help to capture 20-30 million tonnes of CO2 per year by 2030. There will also be an extension to the Climate Change Agreement scheme for a further two years to allow eligible businesses £60 million of tax relief on energy efficiency measures.

Nuclear Power: Additionally, nuclear power will now be classified as “environmentally sustainable,” giving it the same investment incentives as renewable energy. The Government has set a target of achieving one quarter of our electricity provision by 2050 from nuclear, opening up significant incentives and opportunities in the energy sector.

Technology: Increased funding for Research and Development (R&D) is good news for investors in technology, with the government announcing 12 new investment zones across the UK. These zones will create innovation clusters and provide skills, infrastructure and tax reliefs to support high-growth in areas such as AI and quantum research. Each zone will receive £80 million in funding over the next five years.

Infrastructure: The focus on infrastructure spending and the ongoing programme of levelling up projects across the country will result in further investment in road and rail upgrades, affordable housing, and regeneration projects, boosting demand for products and services in these sectors and stimulating growth in the wider economy.

Defence: Other opportunities include the government’s generous £30 million budget over three years for veterans support and housing.

Creative Industries: Generous reforms to tax reliefs (up to 45-50%) for the creative sectors will ensure theatres, orchestras, museums, and galleries are protected against ongoing economic pressures and support.

Healthcare: The healthcare sector is set to become another high-growth sector with an allocation of £10 million in extra funding over two years for the Medicines and Healthcare products Regulatory Agency (MHRA). This investment will help to accelerate patient access to treatments, including research and innovation into ground-breaking technologies such as cancer vaccines and AI therapeutics for mental health.

3. Tax Implications for Businesses

The Budget has put forth several measures to support the growth of businesses.

One such measure is the ‘full expensing’ policy which will allow companies to fully deduct the cost of investments in new machinery and technology from their taxable profits starting from April 1st, 2023, until March 31st, 2026. This move is expected to stimulate business investment and growth with the scheme alone being worth £9 million annually. Additionally, the government has extended the 50% first-year allowance in the same period making the total transformation in capital allowances worth £27 billion over the next three years.

Small or medium-sized businesses can now claim a credit worth £27 for every £100 they spend, provided they spend 40% or more of their total expenditure on Research and Development.

However, the main rate of corporation tax for taxable profits over £250,000 will increase from 19% to 25%. Despite this increase, the UK’s corporation tax rate remains more than ten percentage points lower than the G7 average, making it one of the most competitive in the world.

4. Personal Tax & Expenditure

The UK government has announced a number of measures to support families and households.

The energy price guarantee cap of £2,500 will be extended for a further three months for all UK households. Helping to mitigate the effects of the ongoing cost of living crisis in the UK.

To support parents returning to work, the government will extend 30 hours of free weekly childcare for working parents to cover children below the age of three, eventually covering all children from nine months. The government will also pay upfront for the childcare costs of parents on Universal Credit moving into work or increasing their hours, boosting the maximum claimable amount to £951 for one child and £1,630 for two children. Incentive payments to meet the shortfall of childminders will be increased, and the funding paid to nurseries for existing free hours offers will increase by £204 million from September, rising to £288 million next year.

The planned 11 pence rise in fuel duty will be cancelled, maintaining last year’s 5p cut for another twelve months, saving a typical driver an additional £100 on top of the £100 already saved since last year’s cut.

Alcohol taxes will rise in line with inflation from August, but new reliefs for beer, cider and wine sold in pubs will come into effect at 11p in the pound lower than the supermarket rate. The tax on tobacco will increase by 2% above inflation, and 6% above inflation for hand-rolling tobacco.

The savings and ISA subscription limits will remain the same.

Green shoots

Overall, the Chancellor’s Spring Budget presents green shoots of opportunity for investments in sustainability, R&D and infrastructure. However, there are also changes that could affect personal wealth and long-term financial planning, especially concerning pensions. We will closely monitor the impact of these budget changes so that we can assist our clients in navigating the financial landscape.

If you need advice and recommendations on how the budget might impact your pension, investments, and financial planning, please contact a member of our team.

This article does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are also subject to change.