In a snapshot, the recent and previous budgets mean that from April 2023:
Pensions Tax
- The pension annual allowance will increase to £60k - more details below.
- The pension lifetime allowance will be removed – more details below.
Capital Gains Tax
- The capital gains tax annual exempt amount will reduce from £12,300 per person to £6,000 per person (further reducing to £3,000 from 2024/25).
Company / Dividend Tax
- Dividend allowance will reduce to £1,000 (and reducing further to £500 from 24/25).
- Corporation tax is rising to 25% from 1stApril BUT companies with profits less than £250k will pay tax at a rate between 19% and 25% proportional to the level of profits.
- Corporation tax will remain at 19% for companies with profits under £50k.
Income Tax
- The income tax additional rate (45%) threshold will reduce from £150,000 to £125,140.
- Income tax rates and bands (England & Wales*) will be as follows:
- £12,570 personal allowance
- 20% tax on the next £37,700 (or 8.75 for dividends)
- 40% tax on income thereafter, up to £125,140 (or 33.75% for dividends)
- 45% tax on income in excess of £125,140 (or 39.35% for dividends)
*Scotland Income Tax rates and bands can be found here
Other Measures
- Free 30 hour childcare per week to be extended to children under 3 for eligible households
- Increasing funding to nurseries offering free childcare
- HMRC have been allocated additional funding of £47m to boost their tax collection capabilities – consider tax investigations insurance available through me here.
ANNUAL ALLOWANCE TAX CHANGES
The annual allowance, for those in the NHS scheme, is the amount by which your pension can grow each tax year without suffering punitive tax charges, known as the annual allowance tax. As the NHS pension is a defined benefit scheme, the allowance is not based on the contributions you pay in, but the increase in pension value from one year to the next. The annual allowance has been set at £40k in recent years but tapered to as little as £4k for those with taxable income in excess of £200k.
Due to the basis of calculation, it can produce some surprising results and an increasing spectrum of doctors (not just the long-serving members and high earners) have been affected in recent years.
The changes made in last week’s budget will mean significantly fewer doctors need be concerned about these tax charges. Meanwhile, for those who do still incur the annual allowance tax charge, the changes will mean tax savings of up to £2,700 per year.
The headline annual allowance tax changes of the Spring '23 budget are:
- The annual allowance will increase to £60k from the 2023/24 tax year;
- The £40k allowance will remain in place for the current and earlier years;
- The adjusted income threshold (above which your allowance will be tapered) increases to £260k;
- The fully tapered allowance increases to £10k from £4k. This will now be reached with adjusted income of over £360k (previously £312k).
LIFETIME ALLOWANCE TAX CHANGES
The lifetime allowance is the total value your pension pot can grow to before incurring punitive tax charges. The limit has been £1,073,100 in recent years.
- From April 2023, the lifetime allowance is abolished;
- In recent years, the tax-free lump sum has always been set at 25% of the lifetime allowance, i.e. £268,275. Whilst the lifetime allowance is being abolished, the cap remains at this value.
- In recent years, the tax-free lump sum hasalways been set at 25% of the lifetime allowance, i.e. £268,275. Whilst the lifetime allowance is being abolished, the cap remains at this value.
- Lump sums taken in excess of this will suffer tax at your marginal rate
- For those who have previously submitted lifetime allowance protections, these will remain in force for the purpose of protecting a higher value tax-free lump sum.
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