Low-key Budget brings pension tax reform

The Chancellor’s Spring Budget speech largely focused on incentives to work for parents, older people, and carers, rather than on tax measures. The corporation tax increase from 1 April 2023 (first announced in 2021) was confirmed, and the main rate will be 25% after that date.

However, there were major announcements relating to pensions. Currently, individuals are subject to two thresholds with tax charges imposed where these are exceeded. The first is the annual allowance (AA), which is the maximum amount tax relieved contributions that can be made in a pension input period (which coincides with the tax year). This has been set at £40,000 for a number of years. The AA will increase to £60,000 from 2023/24. The second  threshold is the Lifetime Allowance, which was £1.073M. It was widely rumoured that this would increase to £1.8M in an effort to dissuade those with high pension savings from taking early retirement to avoid tax charges. Instead, the LA charge has been removed for 2023/24, and will be scrapped altogether from 2024/25. The money purchase annual allowance (MPAA) will increase from £4,000 to £10,000 from 2023/24. This replaces the AA in some situations where an individual has already accessed pension savings, so may benefit people coming out of retirement.

For businesses, the system of capital allowances is being reformed. From 1 April 2023 until 31 March 2026, companies will be entitled to claim a 100% first year allowance for capital expenditure on IT equipment and plant and machinery. The 50% deduction that was introduced for special rate expenditure alongside the super deduction will be extended through this period. A consultation on expanding the cash basis for unincorporated businesses has also been announced, which could lead to relaxations of the restrictions on loss relief and the cap on deductible interest payments (currently £500).

A full overview of the announcements is available here.