Chancellor Jeremy Hunt delivered his latest budget statement on Wednesday, 15th March 2023. He promised a “budget for growth”, with focusses on halving inflation, boosting economic growth and reducing the UK’s debt.
He announced that the Office for Budget Responsibility (OBR) report states that inflation will fall to 2.9% by the end of the year, from 10.7% at the end of 2022. And they are not predicting a recession this year which is welcome news.
In the Budget, a range of new tax, benefits and energy measures were announced with various winners and losers across the board. We’ve written a full review of all aspects of the Budget which you can read here.
If you’d like more of an overview, keep reading to see our highlights of the good and bad…
The good
Pension savers
Undoing years of freezes and cuts, Jeremy Hunt made a bid to reward those who have saved hard into pensions to realise their ambitions and secure their futures. He has done so by offering extra tax relief when saving for pensions as follows:
The annual allowance will increase from £40,000 to £60,000 in April 2023
The lifetime allowance (LTA, currently £1,073,100) will be removed completely from April 2023
The money purchase annual allowance will increase from £4,000 to £10,000 in April 2023
Individuals will still be able to carry forward unused annual allowances from the three previous tax years and the threshold for the tapered annual allowance will be increased from £240,000 to £260,000.
These changes, particularly the abolition of the LTA, essentially mean you can contribute considerably more to your pension before having to pay tax. We will be on hand to help you take advantage of the opportunity to fund more into their pensions where previously it seemed your contributions were “capped out”.
Work returners aged 50 or over
The government are keen to get these back to work as the “most skilled and experienced people we have”. They will be introducing a ‘returnership’ – a type of apprenticeship for the over-50s if they wish to get back into the workplace.
Savings and ISA allowances
These are to be frozen. Those who earn less than £17,570 from work can earn up to £5,000 in interest on savings before needing to pay any tax. There are no changes to ISA contribution amounts.
Energy prices
Rising household costs have wreaked havoc for many families. So the continuation of the Energy Price Guarantee at £2,500 a year for a further three months starting 1st April was welcome news for many.
Furthermore, those on pre-payment meters will have their energy prices adjusted so they don’t pay more than those on direct debits. Heat network (or district heating) customers will benefit from a higher rate of relief to equalise the support.
Drivers
Fuel duty has been frozen again. A cut of 5p per litre was brought in last spring and it is to be extended for a further 12 months. The underlying duty itself has also been frozen at 57.95p per litre for the 13th year.
Parents with young children
More government funding will be available for childcare. Two-year-olds will be eligible for 15 hours of free childcare from April 2024 and from September 2025, 30 hours will be available for children over the age of nine months until they go to school.
Additionally, those claiming Universal Credit will get upfront funding for childcare costs for the first month. The amount is increasing too – to £951 for one child and £1.630 for two or more.
The bad
Income tax
The thresholds for Income Tax, National Insurance and Inheritance Tax (IHT) aren’t changing which will result in millions of people paying more in tax. This means that the reduction of the additional rate threshold from £150,000 to £125,140 will remain. Even if wage rises are below inflation, workers will end up paying more in income tax over time. Some might even move up to a higher tax bracket. This is known as fiscal drag. As property prices increase, it is likely more estates will need to consider IHT planning.
Corporation tax
For businesses with larger profits, the increase in Corporation Tax first announced by Rishi Sunak in 2021 as the Chancellor will come into effect. Those earning over £250,000 will start to pay the increased rate of 25%, which will affect around 10% of businesses. However, investing in machinery, plant and IT equipment in the UK can be offset 100%.
Alcohol and tobacco
Costs are set to rise. Duties on wine, beer bottles and spirits will increase in line with Retail Prices Index (RPI) – 5p for a 250ml glass of wine and 500ml bottle of beer. However, the duty on a pint of draught beer in pubs will remain frozen.
The increase on tobacco products will be in line with RPI the plus an additional 2%, or 4% on rolling tobacco.
If you have any questions about the Budget, its implications or anything else regarding your financial position, please don’t hesitate to get in touch.
NB: This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
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