With a new tax year that started on 6 April 2023, we wanted to highlight the main changes that were announced in the Spring Budget and how these changes will affect both individuals and businesses in their financial planning for the year ahead.
The Spring Budget delivered by Chancellor Jeremy Hunt was delivered at a time when many individuals and businesses are struggling with rising inflation, increasing energy bills and a cost-of-living crisis. This makes it more important than ever to ensure your financial plan makes every penny of your available tax allowances count so that you can put you and/or your business in a better position both now, and in the future.
The changes to pensions announced in the Spring Budget allows everyone to save more towards their future with the help of the better tax benefits.
The tax-free amount you can pay into a personal pension will increase from £40,000 to £60,000. This means that those who are saving into pensions will have the option to increase their current amounts and not have to pay any additional tax. The amount you can contribute will be dependant on individual circumstances.
Increase to the tapered annual allowance
The tapered annual allowance, which limits the amount of tax relief high earners can claim on their pension savings by reducing their annual allowance, is being increased from £4,000 to £10,000. This gives more tax relief available to those at the higher end of the salary scale. The adjusted income threshold at which the allowance taper takes effect will also increase from £240,000 to £260,000 from April 6, 2023.
Lifetime allowance is abolished
The lifetime allowance is the total amount you can build up in all your pension savings in your lifetime without paying tax charges was previously set at £1,073.100. From 6 April 2023 there will be no tax payable and from April 2024 it is planned to be removed entirely. This is welcome news to investors, allowing for plenty of scope to save as much as possible into a pension. However, the maximum amount that you can withdraw from your pension, tax free, will be frozen at £268,275. For context, that’s equivalent to just 25% of the lifetime allowance.
Financial planning for business owners
The biggest change that may negatively affect business owners is that corporate tax is going to rise from 19% to 25%. Businesses with profits of more than £250,000 will pay the top rate of 25%, whilst businesses with profits of less than £50,000 will continue paying a corporation tax rate of 19%.
That rate will have a gradual increase for businesses as their profits rise between £50,000 and £250,000.
There is a new capital investment incentive, known as “full expensing” which offers 100% first-year relief from taxable profits, that’s equal to 100% of your qualifying new main rate specifically on plant and machinery investments in the year you incurred that expenditure.
Introduction of Investment Zones
Jeremy Hunt announced the introduction of 12 new ‘Investment Zones’ across the UK to ‘drive business investment and level up to the UK.’ These will give businesses in certain regions a funding package of £80 million over five years, made up of a mixture of spending and tax incentives.
Each zone will be designed to drive growth of at least one key sector – green industries, technology, science, creative and advanced manufacturing etc – and could potentially bring investment into areas that have underperformed economically.
The zones that will be created are:
Long-term sustainable growth and maintaining financial stability was very much the sentiment of Jeremy Hunt’s Spring Budget. It provides an opportunity for both individuals and business owners to consider how best they can maximise pensions and ISA allowances to reduce tax bills in the new tax year and help soften the impact of high inflation and interest rates in the short and long term.
If you would like help with understanding how this new Tax Year is going to affect you both personally and for your business, book a call with one of our Wealth Managers today.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time and will depend on individual circumstances.