Budget 2023 explained

In an attempt to get early retirees to return to the workplace, changes have been made to the pension allowances. Here is what we know so far:

  • The Lifetime Allowance tax charge will be removed from 6th April 2023 and the Lifetime Allowance as a concept will be abolished in a future Finance Bill.
  • In the new regime, an individual’s maximum entitlement to tax free cash will be frozen at £268,275 unless they have prior protections in place.
  • The Annual Allowance will increase from £40,000 to £60,000 from 6th April 2023.
  • Carry forwards of unused reliefs will continue to be available.
  • The Tapered Annual Allowance (TAA) will increase from £4,000 to £10,000 from 6th April 2023.
  • The adjusted income limit for tapering of the Annual Allowance will start at £260,000 (gross). The full taper will apply to individuals with adjusted income of £360,000 (gross).
  • The Money Purchase Annual Allowance (MPAA) will increase from £4,000 to £10,000 from 6th April 2023.

These are the headlines and we are working through the details as we speak, but importantly, none of these changes are taking place this tax year.

In respect to immediate planning, here are our initial thoughts:

Making contributions
You should continue with any planned contributions this tax year to ensure that unused pension allowances are utilised.  From next year, the scope will be greater.  Care should be taken for those who have Lifetime Allowance protection in place as new contributions could lead to these being lost and result in the reduction of subsequent tax free cash entitlements.

Benefit Crystallisations
Where there is an urgent need for tax free cash or income now and a new crystallisation will not create a Lifetime Allowance charge, then it is fine to carry on with this process.  If you can wait until after 6th April 2023 then we would suggest you do so in order to allow the full detail of the new rules to be known. Going forward, there will no longer be a Lifetime Allowance charge and this has to be a welcome change on what has been a controversial tax for a long time.

Opting back in to pension schemes
This is something that will definitely require some discussion and each case will need to be considered on its own merits. Establishing what scheme can be opted into and on what terms will be a critical consideration and the conversation could be different between defined benefit and defined contribution arrangements. Please get in touch to discuss your own situation.

Overall balance of wealth
While this announcement will be received as good news, there is still a need to balance out your portfolio and take care not to be over exposed in any one area. While the option to add more to pension funds and rejoin pension schemes is a welcome one, there is still a need to ensure that there is a balance. As we have seen today, the rules can change quickly, particularly with pensions and you don’t want to be in a position where a rule change causes a significant impact on your financial planning because of a lack of balance.

In other news, duty on beer in pubs will be frozen and will be up to 11 pence less than in supermarkets. There will also be a £200m fund to fix all of the potholes in our roads … a happy budget indeed!

These are just our initial thoughts and reactions to today’s announcement.  We will continue to digest the news and detail of the policies so that we are prepared to provide you with suitable advice when it is needed.

As ever, should you have any questions about your specific circumstances, please get in touch.

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Simon Hoult

Simon is a chartered financial planner with almost 25 years’ experience in the financial services sector.

He has a successful track record in advising high net worth individuals, with a particular specialism in the areas of financial and estate planning, pensions and investments.

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