The Chancellor Jeremy Hunt delivered a Budget yesterday which focused on ‘back to work’ initiatives and included the most significant changes to pension taxation in years.
The key tax measures Hunt announced in response to the better than expected forecasts published alongside the Budget were:
The pension lifetime allowance (LTA) of just over £1m will be scrapped from 6 April 2023 – this means there will no longer be a 55% tax charge when benefits are drawn from a scheme which exceeds the LTA
However, the 25% tax-free lump sum will be restricted to a maximum of £268,275 (25% of the 22/23 LTA)
The annual limit on pension contributions (known as the annual allowance) will increase from £40k to £60k from 6 April 2023
The annual limit on pension contributions that can be made after drawdown will increase from £4k to £10k from 6 April 2023
Companies incurring qualifying expenditure on the provision of new & unused plant and machinery on or after 1 April 2023 but before 1 April 2026 (with no cap) will be able to claim a 100% first-year allowance – for companies paying tax at 25% this provides the same tax relief as the current 130% super deduction which ends on 31 March 2023 – the £1m Annual Investment Allowance (AIA) remains in place for other qualifying expenditure
The Seed Enterprise Investment Scheme (SEIS) has been extended from April 2023 to allow companies to receive investments of up to £250k (from £150k) and individuals to claim relief on £200k each year (from £100k)
Changes to the Research & Development tax reliefs will apply from 1 April 2023 as follows:
The SME enhanced deduction will reduce from 130% to 86% with the payable tax credit also reducing from 14.5% to 10%
Loss-making SMEs who spend at least 40% of their total expenditure on R&D activities will retain the 14.5% rate for payable tax credits – in effect this provides a repayable credit worth £27 for every £100 spent – a reduction on the previous rate of £33, but still better than the intended move to £18
The R&D Expenditure Credit (RDEC) rate for large companies will increase from 13% to 20%.
Despite speculation to the contrary the corporation tax increase to 25% from next month will go ahead as planned. Companies with profits of up to £50k will continue to pay at 19% with a marginal rate of 26.5% for profits between £50k and £250k. Profits over this level will simply be taxed at 25%.
There were no announcements relating to personal tax so all the changes announced in Autumn Statement will take effect as planned from 6 April 2023. The main ones being:
The dividend allowance will reduce from £2,000 to £1,000
The additional 45% tax rate threshold will reduce from £150,000 to £125,140
The Capital Gains Tax annual exemption will be cut from £12,300 to £6,000 (and to £3,000 from 6 April 2024)
The personal allowance and higher rate threshold will be frozen
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