Lucy Orrow – Budget 2023 comments

Budget 2023 seems to have been a quiet Budget for taxes whilst the Chancellor stood at the box. Then he sat down…

Capital Allowances:

The full expensing of capital purchases for businesses was a welcome announcement (made whilst standing, I will admit).  This was introduced in furtherance to the super deduction ending this month. Any costs incurred on plant and machinery in the next 3 years can be fully relieved against income.

Capital allowances can now be claimed as full expensing, 50% first year allowances and the Annual Investment Allowance.

Pensions:

Pensions were also on the agenda – the leaked rise of the annual allowance to £60,000 was confirmed, but to my surprise the Lifetime Allowance was abolished entirely. The income limit from April 2023 will be increased to £260,000 from £240,000 and the maximum taper increased to £10,000 from £4,000. This means that once your earnings and gross pension contributions hit £360,000, pension relief will be fully tapered. This does give an enhanced opportunity to saving.

Trusts & Estates:

A consultation on low income trusts and estates was undertaken last year and the results have now been enacted.

• Trusts and estates with income of up to £500 will no longer need to pay tax;
• Estate beneficiaries receiving income of up to £500 will no longer need to pay tax;
• Discretionary trusts will lose the starting rate band of £1,000 and so all income and gains will be taxable at the higher rates.

Separation and Divorce:

Not that we want to encourage this, but many solicitor friends have been waiting to hear this news for many months and finally the legislation will be enacted.

For disposals which occur on or after 6 April 2023:

• Separating spouses or civil partners will be given up to three years, after the year they cease to live together, to make exempt transfers.
• Exempt transfers will also apply to assets that separating spouses or civil partners transfer between themselves as part of a formal divorce agreement.
• A spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim private residence relief (PRR) when it is sold.
• Individuals who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold, will be able to apply the same tax treatment to those proceeds that applied when they transferred their original interest.

This is a significant benefit in giving time for decisions to be made without tax implications forcing decisions.

Share Options:

Company share option plans have received a boost by increasing the maximum limit to £60,000 from £30,000 for grants made after 6 April 2023.

Retirement:

For many years, the discussion around farmers retiring has rolled on. Farmers are reluctant to retire as they lose significant reliefs on their assets – the farm and farmhouse – which impacts their inheritance tax position.

The Lump Sum Exit Scheme (LSES) was introduced to encourage more to step down and allow the next generation to get working.

Clarity has been given to confirm that payments received will be treated as capital receipts rather than income.

In summary:

Rate bands and allowances were announced back in the Autumn Statement and so today’s announcements have either been in the pipeline for some time or have been announced following lobbying from interest groups.

With the changes to pension relief, our tax specialists are happy to help you consider your options.