The Spring Budget was delivered by Jeremy Hunt on Wednesday 15th March. From a Financial Planning point of view, the biggest focus is on the changes to pension savings. Here’s a summary of the main changes:
Lifetime Allowance (LTA): introduced in 2006, this is the total amount you can build in pensions over your lifetime. Starting at £1.5mil in 2006, it had risen to £1.8mil by 2010/11. However, since then, there have been several reductions, with the allowance currently sitting at £1,073,100. As it stands, any pension benefits over this amount attract an LTA charge of 25% (income) or 55% (lump sum).
As part of the Budget, from 6th April 2023, the LTA charge will be reduced to 0%, with the LTA removed entirely from 6th April 2024. This essentially removes the charge on pension savings, in excess of the cap, from 6th April 2023.
There will, however, be a cap on tax-free cash at 25% of your pensions, subject a maximum of £268,275, unless previous protection is in place (Enhanced, Primary, Fixed or Individual Protection in its various forms). If protection is in place, for an LTA higher than the current level (£1,073mil), higher tax-free cash may still be available. We are still waiting for clarity on what this will look like for those affected.
This does mean that, those with LTA protection which prohibited them from making further pension contributions, will be able to restart pension funding from 6th April 2023, without losing their existing protection.
Pension Annual Allowance: this is the maximum amount that someone can contribute to a pension each year, whilst still receiving tax relief. This was reduced to £40,000pa in 2014/15 however, will now be increased to £60,000pa from 6th April 2023.
This may be particularly attractive to those that will be paying additional rate tax on their income for the first time once the additional/top rate threshold drops from £150,000 to £125,140 in 2023/24.
Money Purchase Annual Allowance (MPAA): this is the maximum amount that those who have drawn income from their pension pot (and are under age 75), can pay to their pension. This is currently £4,000pa, however, will be increased to £10,000pa from 6th April 2023.
For higher earners, i.e. those with income in excess of £200,000, the minimum tapered annual allowance will increase from £4,000pa to £10,000pa, again from the 6th April 2023.
There are quite a lot of changes there, please do get in touch with Val or Claire if you would like to discuss any of these changes, in relation to your own specific circumstances.
As expected, there were no further changes to tax rates, bands, and allowances. These will remain as announced in the Autumn Statement last November and you can read the update that we sent at the time, here: https://ebsuk.com/budget-update-november-2022/. The main points to note are the freeze of many allowances, the reduction in the dividend allowance and Capital Gains Tax (CGT), the first reduction of which comes into force from 6th April 2023.
As always, we are here to guide you through how these changes may affect you and your wider Financial Planning.
