Written By Sophie Haslehurst
Following the announcement of the Spring Statement Budget from Chancellor Jeremy Hunt, Chartered Financial Planner Sophie Haslehurst highlights the key points we should be aware of below.
We haven’t had a budget that has impacted pensions this much since 2015. Although we tend to find that “leaks” beforehand seem to now be commonplace, I don’t think anyone was prepared for the pension changes that have been announced by Jeremy Hunt. This has generated headlines, but as IFAs we are always here to help.
My views on the most important elements of the budget:
Annual allowance
The annual allowance is increasing to £60,000.
What does this mean? You can pay more into a pension, annually, without paying a tax charge. It offers the chance to save up a bigger pension pot in retirement and reclaim tax relief, for additional tax payers an extra £9,000 a year if you pay in the maximum. You still have the carry forward allowance from previous tax years you can utilise too!
The Money Purchase Annual Allowance (MPAA) and the minimum Tapered Annual Allowance (TAA) will both be increased from £4,000 to £10,000, while the adjusted income threshold for the TAA will also be increased from £240,000 to £260,000. More payments into pensions for people impacted by reduced annual allowance. Does this impact you? Maybe, the adjusted income threshold isn’t the easiest to understand, however, ultimately, it increases the flexibility for more people to pay more into their pensions. This is overall a complex area, and really needs the proper advice from your adviser but a good conversation piece and one I would recommend you have.
Lifetime allowance
“The government will also legislate to remove the Lifetime Allowance (LTA) charge for 2023 to 2024 in Spring Finance Bill 2023 and will deliver the technical changes necessary to abolish the LTA from April 2024 in a future Finance Bill.”
This is a huge change for people who were impacted by the LTA and goes hand in hand with the increases to how much you can pay into your pension annually. The tax charge was 55% above the LTA, so makes a good headline and a significant change for those it is applicable to.
The tax-free cash entitlement is remaining at £268,275, the 25% equivalent of the existing limit (unless you have some of the protections from pre 2016).
So… you can save as much as you want in your pension, but you’ll have to pay tax on this above the limit for tax free cash. For me; this only highlights how complex pensions and taking income in retirement needs proper advice. I’d strongly suggest you speak to your adviser, potentially go through a cash flow modelling exercise with them and talk about how to fund your pension income tax efficiently. The are significant benefits and tools provided by this budget that can be utilised.
Corporation tax relief
I’ll keep this simple, well as simple as tax can be! The main rate has been set at 25% and 19% for small profits for the financial year beginning 1 April 2024. The 25% rate is applicable to businesses that have profits over £250,000. This provides people more opportunities for tax planning, such as pension contributions, which will reduce your profits and could keep that level down. It could keep your profits below this threshold and therefore save you a lot of money. For instance, that extra 6% is £15,000 which is a great pension contribution you would have otherwise paid in tax.
A full guide to the Spring Statement Budget, supplied by our strategic partner Beavis Morgan, can be downloaded by clicking here. If you do have any questions regarding items raised in the budget, please don’t hesitate to get in touch.
Written By Sophie Haslehurst
