A ‘back to work’ budget was the theme presented by the Chancellor with measures aimed to encourage the 8 million or so economically inactive into work.
Things aren’t as bleak as forecast last November due to falling energy prices and higher tax revenues that will reduce Government borrowing this year and next by £30bn less than expected. But anyone hoping that we would see major tax cuts will be sorely disappointed. Whilst the economic backdrop is better than expected, the Government faces challenges of persistent low economic growth and public sector pay demands which
makes broad relaxation of the tax burden unlikely for the foreseeable future.
Most of the key announcements were directed at getting people into work and keeping them there with changes on childcare and pensions. The changes to pensions were primarily directed at keeping doctors working in the NHS who have been leaving due to the way the pension tax rules penalised them. But the changes will also be of significant interest to people with larger pension funds or who are higher earners. The devil is in the detail and plans should be discussed with your financial adviser before being put into action.
When Jeremy Hunt, the fourth UK chancellor of 2022, took office last October, inflation was raging at 40-year highs, UK interest rates had already risen seventimes, and the country was in the grip of the most bitter cost-of-living crisis since the 1970s and UK house prices were falling. Soon after, the Bank of England announced that the UK was in recession and would remain that way in 2023.
However, the UK economy wrong-footed observers by narrowly sidestepping recession in 2022 and, so far, UK economic data has been consistently ahead of expectations in 2023.
News that the UK had dodged a recession at the end of 2022 pushed the FTSE 100 Index to a new all-time high boosted markets in February. Although monthly UK GDP fell by 0.5% in December amid bitter strike actions and the sharpest fall and a fall in UK retail sales since records began, the UK economy was flat in the last quarter of 2022. This meant it avoided a technical recession, delivering 4% growth across 2022 as a whole.
In January, UK GDP grew 0.3% while the public finances also improved. Subsequent consumer spending data has also been stronger than forecast and signs are emerging that house prices may soon be on the mend.
Even so, UK monthly UK GDP is still 0.2% below its pre-coronavirus levels and Britain remains the only G7 economy that is smaller today than when the pandemic struck.
As the new chancellor was arriving last October, UK year-on-year inflation hit a peak of 11.1%. It subsequently eased in both November and December and fell for a third consecutive month in January, hitting 10.1%.
Within this, UK food price inflation is still at 45-year highs. This, along with burgeoning UK energy bills, kept only partially in check by government support, has had a disproportionately greater impact on lower-income households and intensified the worst cost-of-living crisis for 50 years.
Meanwhile, inflation added close to £3.3bn to the cost of government debt repayments in January alone, due to the rising cost of servicing index-linked gilts.
As the new chancellor was arriving last October, UK year-on-year inflation hit a peak of 11.1%. It subsequently eased in both November and December and fell for a third consecutive month in January, hitting 10.1%.
Within this, UK food price inflation is still at 45-year highs. This, along with burgeoning UK energy bills, kept only partially in check by government support, has had a disproportionately greater impact on lower-income households and intensified the worst cost-of-living crisis for 50 years.
Meanwhile, inflation added close to £3.3bn to the cost of government debt repayments in January alone, due to the rising cost of servicing index-linked gilts.
As previously announced in the Autumn Statement in November 2022, the personal allowance will remain at £12,570 until 5 April 2028 and the higher rate threshold will stay at £50,270.
From April 2023, the 45% additional rate threshold will be reduced from £150,000 (the level set in 2010/11) to £125,140. In Scotland, the higher and top (additional) rate thresholds for non-savings, non-dividend income will also drop to £125,140 with the tax rates increasing to 42% and 47% respectively.
The blind person’s allowance will be increased to £2,870 for 2023/24.
The starting rate for savings will remain at the current level of £5,000 for the tax year 2023/24.
As previously announced, the class 1 primary threshold and class 2 lower profits limit will remain aligned with the personal allowance (£12,570) until April 2028.
The upper earnings limit and class 4 upper profits limit will remain aligned to the higher rate threshold at £50,270 through to April 2028. The lower earnings limit (£6,396) and the small profits threshold (£6,725) remain unchanged.
For 2023/24, the class 2 rate will be £3.45 a week and the voluntary class 3 rate will be £17.45 a week.
As announced in the Autumn Statement 2022, the annual exempt amount for individuals and personal representatives is £6,000 from 2023/24 and will be halved to £3,000 in 2024/25. The annual exempt amount for most trusts is £3,000 (minimum £600) then halved in the following year.
In the Spring 2023 budget there were a couple of additional announcements on CGT.
Deadline extension
A measure relating to disposals of an asset under an unconditional contract was announced. The change moves the 4-year deadline from the tax year the contract was entered into to 4 years from the end of the tax year completed.
The change will apply in relation to contracts entered into on or after 1 April 2023 for corporation tax and 6 April 2023 for Capital Gains Tax.
Separation and divorce
As announced on 20 July 2022, changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating will apply to disposals on or after 6 April 2023. They will be given up to three years in which to make no gain/no loss transfers of assets between themselves when they cease to live together; and unlimited time if the assets are the subject of a formal divorce agreement.
In addition, some special rules will apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
As previously confirmed, the nil rate band is frozen until 2027/28 remining at £325,000, which was the level first set for 2009/10. The residence nil rate band (RNRB) will likewise stay at £175,000 and the RNRB taper will
continue to apply where the value of the deceased’s estate is greater than £2 million.
A review of the state pension age will be published in May 2023.
From 6 April 2023 the following changes will apply:
A series of changes have been made to Universal Credit (UC), including:
The domestic energy price guarantee (EPG) will be maintained at £2,500 per year until 30 June 2023 after which it will increase to £3,000 per year. This date will also see an alignment of the EPG for those on pre-payment meters.
Fuel duty is to be maintained at the 2022/23 level of 57.95p per litre through an extension to the temporary 5p fuel duty cut and cancelling the planned increase in line with inflation.
A package of measures was announced:
This will be effective from April 2024, with the exception of the last bullet which will take effect from April 2023.
As a result of measures announced at this Budget, businesses will now benefit from:
The Energy Bills Discount Scheme provides a discount per unit consumed on wholesale gas and electricity process for qualifying non-domestic consumers – this includes UK businesses, voluntary and public sectors. The discounted rates are £19.61 per MWh for electricity and £6.97 per MWh for gas. Higher rates of discount are available for energy intensive industries.
For R&D expenditure after 31 March 2023:
From 1 April 2023 a higher rate of relief for loss making R&D intensive SMEs will be introduced. The new rate of 14.5% will apply to qualifying companies where at least 40% of their total expenditure is on R&D.
Following a consultation, the government will legislate several administrative changes to all eight of the creative industry tax reliefs to address unintended consequences and improve compliance. This will include an anti-abuse measure. The draft legislation will be introduced Summer 2023.
The government will establish 12 Investment Zones across the UK. Each zone will have access to interventions of £80 million over 5 years. The government will legislate to allow designation of special tax sites in or connected
with Investment Zones. These sites will be subject to approval by the government and will include reliefs such as Stamp Duty Land Tax (SDLT), capital allowances for plant and machinery and secondary Class 1 National Insurance contributions relief.
** Not available if taxable non-savings income exceeds the starting rate band
* Reduced by £1 for every £2 of adjusted income over £240,000 to a minimum of £4,000, subject to threshold income being over £200,000.
** Reduced by £1 for every £2 of adjusted income over £260,000 to a minimum of £10,000, subject to threshold income being over £200,000.
Property transaction taxes have different rates and names depending on where in the UK a purchase takes place
*0% for freeport qualifying property in England only
*No employer NICs on the first £967pw for employees generally under 21 years, apprentices under 25 years and veterans in first 12 months of civilian
employment. No employer NICs on the first £481pw for employees at freeports in Great Britain in the first three years of employment starting from 6 April 2022
The value of pensions and investments can fall as well as rise and you can get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
This summary is for general information only. You are recommended to seek competent professional advice before taking or refraining from taking action on the basis of the contents of this publication. The guide represents our understanding of the law, the Spring Budget Summary 2023 and HM Revenue & Customs practice as at 15 March 2023, which are subject to change.