GOSH, GULP AND GROWTH The 2023 budget- about as much fun as the BBC’s Apprentice interviews

Happy St. Patricks Day!?

Here’s my initial thoughts on this week’s budget and what it could mean for you. I’ll leave the detail for your follow up via the newspapers, TV coverage and bulletins from your IFAs. In early April I will expand and re-issue my Retirement Planning Expert 2023 book to encompass more detail. In the meantime I'm delighted to see to-day that the kindle version is number one best seller in profession taxation on Amazon UK adding to the paperback being at number 1 earlier this month. But more importantly for now I set out the immediate tax deadlines and a reminder on what you should be thinking about as a matter of some urgency if you have not done so already- either by yourself or, better, with a good IFA.

I’m starting with the budget announcements and changes

Gosh what a lot leaks. It seems the thrust of the budget and pension changes was all over the place days before the budget and you may have seen my ‘leaks’ post on LinkedIn. I’d also spotted the Chancellor using one of the straplines of Retirement Planning Expert 2023 with his caution about a ‘cliff-edge’ retirement when, by now, you’ll know that the trick is a glidepath retirement and ‘it’s time to put yourself first’.

The ‘gulp’ moment was the Chancellor announcing that the lifetime allowance (LTA) would be abolished. The LTA had plaqued many high earners who want to continue to build up their pension. I did fall off my Chair in the same way that as I did when Liz Truss wanted to abolish the 45% tax rate.

Will abolishing the LTA survive the vote in Parliament next week? I guess it will but Labour have already said they will scrap it so it may be a case of building up funds when you can from 6 April 2024 (when the LTA is to be abolished). The next election is likely to be Autumn 2024 so it might be a narrow window for you and your IFA to make some decisions. There were also thorns in the middle of the small print around the roses . There will be a new limit on the amount of the tax free commencement lump sum for 2023/24 of ￡268,275?which is equivalent to 25% of the current LTA. Will this continue in 2024/25 and ‘dampen’ down the renewed pensions enthusiasm?

Having said that the annual pension allowance has been increased from ￡40,000 to ￡60,000 from 6 April 2023. I suspect that will see IFAs rushing to their clients to implement schemes to leverage the extra wriggle room to play the tax bands in the first weeks of the new tax year and again in early 2024/25. I can see the IFA meeting prompts being set up as I type this note.

The economy is also looking about as fun as the BBC’s Apprentice interviews. Did you see it last night and indeed the whole series? I hate to say it but it has become a bit uncomfortable and the formula has seen its day I think. Maybe it is time for someone new like Stephen Bartlett of Dragons Den? The second elephant in the chancellor's big red box (the first is the ‘care’ budget as I’ve been writing about for years) is the reality of frozen tax thresholds for years and years ahead and pushing more people into basic rate and higher rate tax. Remember higher rate 40% tax was supposed to be for ‘big earners’. Ok so inflation may come down from 10.7% (Quarter 4 , 2022) to 2.9% by the end of this year (so says the independent Office for Budget Responsibility) and apparently we are not going to enter a technical recession but where is the magic ingredient ‘growth’?

The 12 investment zones sound attractive but how long will they take to actually boost ￡￡￡ income. They will be spread across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool.There will also be at least one in each of Scotland, Wales and Northern Ireland.

The childcare help is awesome but gosh it’s a slow implementation pathway when you look at the detail (and that’s just for England). The lovely little money purchase annual allowance increase (from ￡4,000 to ￡10,000) will get some of the glidepath retirees looking again at a bit of work (NB ‘bit of work’ as they are now enjoying themselves of course). Enhanced R and D tax credits for R&D intensive SMEs will have caused large cheers from the small pharma biotechs (and other truly R&D intensive business) who will take on more research help I guess. Sadly nothing new on the abhorrent IR35 regime that dampens resourcing flexibility so we are stuck with IR35 seemingly.

Corporation tax for businesses is to increase from 19% to 25%, as planned. Firms which make a profit of more than ￡250,000 will pay 25% tax on their profits from April 2023. There is a tapered increase in the 19% for profits above ￡50,000 and hence the increasing focus on pensions when profits are above this level. The chancellor says only 10% of companies will pay the full 25% rate.

For most of the Small and Medium (SME) businesses I deal with the budget’s fanfared capital allowances regime creates nothing new as they were able to get the tax cashflow via the existing schemes but the changes will help large businesses ‘build’ their asset base. Again, it will take time to produce ￡￡￡ revenue.

Growth? It all seems a bit light but I see the prediction ?of the OBR has become slightly less gloomy about the prospects for 2023. It is now expecting GDP to contract by 0.2%, instead of the 1.4% it predicted in November. The Chancellor says that will be followed by growth of?1.8% next year, 2.5% in 2025 and 2.1% in 2026. That compares with November forecasts of 1.3% for 2024, 2.6% for 2025 and 2.7% for the year after – so the OBR is expecting stronger growth in the next two years, but a slower recovery thereafter. Time will tell (gulp… I last said those words after the Truss/ Kwartang budget announcement).

Cost of living support. After a vigorous campaign from the consumer rights champion Martin Lewis and many charities, the Chancellor confirmed that the energy price guarantee will remain at ￡2,500 until July – it had been set to rise to ￡3,000. He says this will save the average family a further ￡160 on top of support measures already announced.

?Insolvency news

I’m hearing from my insolvency chums that there is an increasing caseload of abuse over Covid-era Government backed loans where directors took dividends from companies when the company had insufficient profits or applied the cash to clear director’s loans and then the company got into difficulties. Unsurprisingly a number of directors are now facing disqualification or worse.

?Tax year end checklist- deadline 5 April 2023

Review your finances and wealth with your IFA and implement the actions before the tax year deadline of 5 April 2023. Expect written advice and recommendations encompassing your wealth position this year 2022/23 and next year 2023/24 and covering your income, business and rental profits, any long term incentives and any capital gains tax issues. Remember the capital gains tax exemption is being slashed from ￡12,300 in 2022/23 to ￡6,000 in 2023/24 and then ￡3,000 in 2024/25 (as I’d set out in my November newsletter). Finances are complex and if you don’t understand the advice and recommendations discuss it further with your IFA until you have clarity on what, when and how. If you want to check it all by me for a tax view just involve me as I’m always happy to see an IFA’s plans for your wealth and work with your IFA to help you.

Review your risk profile with your IFA. Remember that there is a whole range of risk positions available on pensions and investments and I heard of some clients who lost nearly 30% in the first months of Covid in March/ April 2020 only for their funds to creep up again. I also remember the lost decade in Japan in the 1990s when the stagnation floored retirement funds and plans. The basic thing I did in the Retirement Planning Expert 2023 book this year was to underline the point that folk really should understand the risk positions in their pensions. This is a no ifs/ no buts point and if you don’t understand and accept it you should revisit it all with your IFA so you completely understand the range of %up/%down your investments are exposed to and are bought into the consequences. As I say in the book- the buck usually stops with you on all this and as you know I can’t give financial advice.

Some of you with very long memories will remember that in the mid 1990s I was manager of the Investigations and Recoveries Team of the UK Investors Compensation Scheme which is now the FSCS, the UK financial safety net. In difficult times stay within the UK safety net and within FSCS limits i.e. no more than ￡85,000 in a sole name bank account (it’s double that for joint accounts)– and there are temporary limits above this when you are moving house -again lots in Retirement Planning Expert 2023 on that.

Review how your income sits within the tax bands and how could you leverage this. The bands are the personal allowance (￡12,570), then 20% basic rate tax band (￡12,571 to ￡50,270), 40% higher rate tax band (￡50,271 to ￡100,000), kill zone tax band of potentially up to 60% due to the loss of the personal allowance between and ￡100,000 and ￡125,140 and then back to 40% between ￡125,141 and ￡150,000 and then the additional tax band of 45% for amounts over ￡150,000. Remember the additional rate 45% band starts from ￡125,140 from 6 April 2023. Consider how your wealth falls into these tax bands and what could be done about it via pensions. For those with a high risk appetite (make sure you understand what this means with your IFA) and a very high income, and after you have exhausted pension planning, the IFA may advise you on Enterprise Investment Schemes and/ or Venture Capital Trusts to assist with your wealth and tax planning. If you don’t know how to play tax bands with pensions read Chapter 3 of Retirement Planning Expert 2023 and the section ‘Playing the tax bands while you can’.

Your annual ￡20,000 ISA tax free allowance is a use it or lose it opportunity. With it involving ￡40,000 for a couple the window closes at midnight on 5 April 2023.

Gift aiding- check this was done or will be done by the higher rate tax payer if you are a couple.

Remember the dividend tax free break reduces from ￡2,000 in 2022/23 to ￡1,000 in 2023/24.

My very best wishes

?

Allan

www.allaneslersmith.com