What Does the Spring Budget Mean for You?

Chancellor Jeremy Hunt has now unveiled his Spring Budget. Which tax changes and new policies were introduced and what does it mean for your personal finances?

income tax system for the first time, or into higher tax bands over the next six years as wages increase. In addition, from next tax year the 45 percent additional rate threshold will be reduced from £150,000 to £125,140, dragging more people into the highest rate of tax.

Cost of Living

The Chancellor of the Exchequer set out a variety of measures aimed at tempting people back into work to boost Britain’s economy and provided some significant reforms of childcare, energy and fuel duty. Facing calls to address the sharp fall in living standards driven by the recent surge in inflation, there was some attention to the challenges faced by households up and down the country with measures addressing energy and fuel costs as well as the cost of childcare.

The Energy Price Guarantee (EPG) that currently limits the average annual household bill to £2,500 had been set to rise to £3,000 in April - an unwelcome squeeze for many struggling households. However, the present level of the EPG is to be extended for three months, thereby giving households greater affordability and certainty - at least in the short term. Mr Hunt also extended a cut in fuel duty which was due to expire at the end of March, a welcome move for motorists and hauliers dealing with elevated prices at the pumps.

The Chancellor also significantly expanded the scope of free childcare as part of the government’s drive to get more people into work. The plan will see 30 hours of free childcare a week for working parents being expanded to cover children from the age of nine months to two years old, but this will only be fully implemented by September 2025. At present, only parents with three and four-year-olds can get 30 hours of free childcare a week. This is a notable move, as many businesses have had difficulty recruiting suitable staff - a situation which has resulted in wage inflation and increased costs for businesses. More ‘wraparound’ care in schools at the start and end of each day was also promised.

Pension Changes

There were no new tax cuts, continuing the prudent approach Mr Hunt has pursued since taking the helm last autumn, though his changes to pension limits caught the eye. They are squarely aimed at getting over-50s back into work in an effort to tackle economic inactivity, and will allow all investors greater scope to rebuild pension pots following significant rises in the cost of living and a dip in markets over 2022.

The most surprising of these was the removal of the pension Lifetime Allowance (LTA). The LTA is the limit on how much you can accumulate across all your pensions before facing a tax charge. It had been frozen at £1.073m until 2026, but it will now disappear altogether from 6th April 2023. This could mean some people close to, or over, the limit could be encouraged back into work, or into working for longer, as they could accrue further pension provision without being penalised when they take benefits.

Meanwhile, the pension annual allowance, the maximum that can be paid into your pension each year including employer contributions, will be increased from £40,000 (subject to sufficient earned income in a tax year) to £60,000 from 6th April 2023. For those whose earnings vary greatly from year to year, this offers more scope to upsize contributions and better plan for retirement.

Personal Taxation

There were no major changes to ISAs or to personal taxation, which wasn’t a great surprise given that short-term tax cuts could fuel inflation and are at odds with the Chancellor’s strategy of targeting debt reduction and suppressing rising prices.

Income Tax Thresholds

Mr Hunt revealed that income tax thresholds would be frozen for even longer until April 2028, which will pull more people into the

This underscores the advantages of tax-efficient wrappers such as ISAs and pensions where income and investment gains aren’t taxable. Maximising pension contributions, where appropriate, looks more attractive than ever.

Tax on Dividends and Capital Gains

The tax-free allowance for share dividends is to be cut. The dividend allowance, which is on top of the income tax personal allowance, was reduced from £5,000 to £2,000 in 2017. It will now almost disappear altogether, falling to £1,000 next year and to £500 in 2024.

This means more people will end up paying tax on their dividends and have to fill in self-assessment tax returns each year. The tax rates on dividend income are unchanged, 8.75%, 33.75% and 39.35% for the basic, higher and additional rates respectively.

Dividends provide a regular income from investments and a way for self employed individuals to pay themselves via their own company. It emphasises the need to use tax-efficient ISA accounts to house investments, not only to save tax but to reduce fiddly administration each year.

The previously announced capital gains tax (CGT) changes covered in a prior article still stand, with the annual CGT allowance set to fall to £6,000 per person from 23/24, and then again to £3,000 in 24/25.

Graham Austin, Chartered FCSI Investment Director Graham.Austin@charles-stanley.co.uk

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