2023 Budget Announcement

2023 Budget 

The Chancellor, Jeremy Hunt, delivered his first Budget with a stated aim of drawing people back into work and delivering against the Prime Minister’s economic priorities.

He shared the Office for Budget Responsibility’s (OBR) predictions that the UK would narrowly avoid a recession this year, despite an expectation that the economy will shrink by 0.2% overall. The OBR also predicted that headline inflation will reduce to 2.9% by the end of the calendar year, and that the debt-to-GDP ratio would fall within 5 years.

Headline Changes

The Chancellor confirmed several hotly-anticipated changes to taxes as well as continued and further support for energy bills, families, and those looking to re-enter the workforce.

Pension Allowances 

The Government will remove the Lifetime Allowance (LTA) threshold currently set at £1.07M. This will take effect from 6 April 2023, with the aim of abolishing it in a future Finance Bill.
The Pension Commencement Lump Sum ( also known as ‘Tax Free Cash’), for those without protections or guarantees will be retained at 25% of the fund up to the current capped level of £268,275 and will be frozen there. For those with LTA protection the 25% will be of the protection figure.

Alongside this, the Annual Allowance for pension contributions will rise from £40,000 to £60,000 from 6 April 2023. The ability to ‘carry forward’ unused annual allowance from the previous three tax years will still be available. For very high earners (with threshold income exceeding £200,000), the net adjusted level for tapering of the Annual Allowance to start has been increased from £240,000 to £260,000. The taper-reduced allowance has also been increased from £4,000 to £10,000.

The Money Purchase Annual Allowance ( a reduced level of tax-relieved pension allowance once a pension is flexibly accessed) will rise from £4,000 to £10,000. This is likely to benefit those over 55 who have already tapped into a Defined Contribution pension.

Taxation of Low Income Trusts and Estates

Following consultation last year, the Government will now legislate proposals so that trusts and estates will have a simplified taxation process. The entirety of discretionary trust income will now be taxed at trust rates, rather than the first £1,000 being taxed at basic rates of tax. Trusts and estates will not need to pay tax on income as it arises if the income is less than £500, nor will beneficiaries be taxed on income that falls within that £500 limit. This will be effective from April 2024, giving just over a year for more detail and guidance to be released and for software providers to be able to make these changes.

Support for Energy Bills

The ‘Energy Price Guarantee’ , which protects customers from increases in energy costs by limiting the amount suppliers can charge per unit of energy used, has been set at £2,500 for the typical household since October 2022. This was due to rise to £3,000 in April but will now remain at £2,500 for a further three months until June.

Childcare for Young Families

Free childcare for working parents in England is being extended from three and four year olds to children aged from nine months up to their third birthday. Available for up to 30 hours a week, it will be implemented in stages by September 2025.

Alcohol and Fuel Duty

To help pubs, the Chancellor has increased draught relief, meaning taxes on draught beer and cider will be up to 11p lower than the duty on similar products in supermarkets. However, the Chancellor also confirmed that from August alcohol duty will be increased in line with inflation, ending a year-long tax freeze. August will also see the introduction of a long-awaited new alcohol taxation system, which will charge alcohol duty according to the strength of drinks across the board, increasing taxes on stronger red wines and ciders.

The 5p per litre cut on fuel duty, introduced last year following the war in Ukraine, will be maintained for another year.