Not sure what to make of this month’s Budget?
As the dust settles and we’ve had some time to digest the chancellor’s plans for economic growth, it’s time to take a look at what they really mean for pension savers and investors.
Read on to find out how the changes will impact you and your retirement.
LTA abolished
We are really pleased to see Mr Hunt taking on board the views of financial planners and abolishing the Lifetime Allowance on pension savings from April 2024. This will mean there will be no LTA tax charge when you come to access your funds and will simplify the pension planning process.
To allow the existing legislation to be unravelled, withdrawals made next year in excess of the LTA will effectively be taxed at 0%, which opens up the opportunity for further funding, even if the allowance had been used in full. There will, however, be a cap on tax-free cash at 25% of savings, up to a maximum of £268,275.
Anyone with a tax-free cash entitlement in excess of the cap because of their LTA protection will retain their rights to the higher amount. You will also be able to restart pension funding from 6 April 2023 without losing your existing protection. Those with scheme specific tax-free cash in excess of 25%, or with rights to a lump sum, will also keep this entitlement.
The measures are part of the government’s drive to tempt early retirees back into the workplace, particularly doctors who left for pension tax reasons. Will it work, or will the golf course be too great a temptation? Only time will tell…
Annual allowance alterations
As expected, there were no further changes to tax rates and bands, however, some allowances have been adjusted and could present new opportunities for investors.
The annual amount you can pay into your pension has been increased by £20,000, to £60,000 in total, which presents an opportunity to make a larger contribution and is a welcome boost for savers. There will also be extra tax relief of £9,000 from April for additional rate taxpayers.
The money purchase annual allowance is to increase from £4,000 to £10,000, which will mean that if you have already started to draw income from your pension, having left the workplace or reduced your hours, you could return to work and now put more money into a pension.
Crucially for parents, the child benefit tax charge will not apply if the net income of the highest earner in your household falls below £50,000. The ability to pay up to £60,000 into your pension might make this more achievable.
Key points for the 2023/24 tax year
I believe some of the measures announced before this month’s budget are worth highlighting, as we prepare for the new tax year. They are:
- State pension: The triple lock is being maintained and a review of the timetable for changes to the retirement age is also ongoing. The government has promised to publish its response by May this year.
- Income tax: The basic, higher and additional rates of income tax will remain at 20%, 40% and 45% respectively. The personal allowance and basic rate band are to be frozen at £12,570 and £37,700 respectively until April 2028. This means the higher rate threshold will remain at £50,270 if you are entitled to a full personal allowance.
- Additional rate tax: The point at which this becomes payable is being reduced to £125,140 from £150,000. This means if you are already subject to additional rate tax, you will pay another £1,243 in 2023/24.
- Dividends: The allowance is to be halved from £2,000 to £1,000 for 2023/24 and halved again the year after. The dividend tax rates will remain at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
- National insurance: Thresholds are being held at the current levels for the employed and self-employed, to keep them in line with the annual personal allowance of £12,570.
- Capital gains tax: The annual exemption is being cut from £12,300 to £6,000 from April this year and to £3,000 12 months later. The rates of tax will continue at 10% for gains falling into the basic rate band, when added to income and 20% for gains exceeding the higher rate threshold (18% and 28% respectively for gains on residential property).
- Inheritance tax: The nil rate band and residence nil rate band will remain at £325,000 and £175,000 respectively until April 2028.
- Corporation tax: This is set to rise to 25% in April. However, small companies with profits of less than £50,000 will continue paying it at the current rate. Tapering relief is also being reintroduced for businesses with profits of between £50,00 and £250,000.
If you have any questions about how the recent budget will affect your investments, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com
