Spring Budget 2023

Posted: 16/03/2023

The Chancellor of the Exchequer, Jeremy Hunt, delivered his first Spring Budget yesterday and, as we expected, the statement primarily focused on growing the economy and continuing to support families with the cost-of-living crisis.

All change

The chancellor confirmed that the main rate of corporation tax will increase from 19% to 25% in April 2023 for companies which generate a profit of over £250,000. The government did announce plans to mitigate the impact of these increases, as part of its drive to create a competitive investment environment, through separate corporate tax reforms.

The updates to the pension regime were more extensive than expected, with the annual tax-free pension allowance increasing from £40,000 to £60,000 from April 2023 (the relief remains tapered for higher earners). The lifetime allowance, currently £1.07 million, is to be completely abolished from April 2024. These changes will make the use of pension savings more attractive for inheritance tax planning on death. 

Additional private client proposals

There were no other significant private client measures in the remainder of the Budget. There were, however, some additional announcements of interest including:

• Limiting the scope of agricultural property relief and woodlands relief to property in the UK only. Property in the European Economic Area (EEA), the Channel Islands and the Isle of Man will no longer benefit from the relief from April 2024.
• Restricting UK charity tax relief and exemptions for income tax, capital gains tax, corporation tax, inheritance tax, SDLT and ATED to UK charities only from 15 March 2023. There will be a transitional period for some non-UK charities until April 2024.
• An anti-avoidance rule increasing HMRC’s notification periods, assessment and claim time limits in relation to chargeable gains or allowable losses when an asset is disposed of under an unconditional contract.
• Simplifying income tax for trusts, estates, and beneficiaries by making small amounts of income exempt from tax and reporting requirements.
• Removing non-taxpaying trusts from reporting requirements.

The government is also going to consider modernising HMRC’s income tax services in order to move towards a more digital approach. In addition, plans were announced for a consultation on a new criminal offence for the promoters of tax avoidance schemes, including potentially disqualifying company directors involved in such schemes.

Remember, remember

Finally, when considering this Budget, it is important to remember the tax changes announced in the 2022 Autumn Statement which will be coming into effect on 6 April 2023, including:

• The threshold for the additional rate of income tax (45%) will reduce from £150,000 to £125,140, and all other income tax bands will be frozen until 2028.
• The capital gains tax (CGT) annual exempt amount will reduce from £12,300 to £6,000 (and then to £3,000 from April 2024), however the rates of CGT will remain the same.
• The dividend allowance will reduce from £2,000 to £1,000 (and then to £500 from April 2024).
• The inheritance tax thresholds known as the nil-rate band and the residential nil-rate band (the latter of which is tapered for estates valued over £2 million), will both remain frozen at their current rates, £325,000 and £175,000 respectively, until 2028.
• The stamp duty land tax (SDLT) reductions remain in place until 2025.

The reduced or frozen allowances and thresholds will have a real impact as they result in higher taxes on income and capital gains, and in a greater inheritance tax burden.

If you have any questions or concerns about the impact of the Spring Budget on your affairs, please contact us. We will be happy to advise.

This article was co-written with Robyn Dann, associate in the private client team. 

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