‘Everywhere’ was a crucial buzzword in Jeremy Hunt’s Budget speech, emphasising the government’s commitment to generating economic growth across the UK rather than just in London. Some listeners might have wondered whether, in promising to improve everything everywhere, Mr Hunt was riffing on the title of a certain award-winning film. However, any hopes that the Budget speech would turn into a surreal multi-dimensional adventure involving taxes and laundry were duly dashed. There was no cleaning, unless you count clean energy, and there was surprisingly little on personal tax.
In this area the most striking announcements were undoubtedly on pensions. That is a word which induces a Pavlovian response, characterised by a slowing of pulse and drooping of eyelids. But before you yield to the urge to curl up under your desk for a cheeky doze, the pension changes announced by Mr Hunt really were mildly exciting for many workers, particularly older individuals with more substantial pension funds and/or the capacity to contribute more to their pensions.
One key change concerns the annual allowance, the amount which an individual can contribute to a pension in a single tax year without tax relief on such contributions being clawed back. That amount was originally £215,000, but has been savagely cut back in recent years and this year stands at just £40,000. Moreover, tapering rules apply to higher earners, which have the effect that for many, the maximum amount that can be contributed tax-efficiently to a pension is a paltry £4,000 per annum. Increases to the annual allowance and adjustments to the tapering rules mean that from April 2023, there will be scope for many workers to increase their pension contributions, without being penalised for doing so. However, close attention will need to be paid to the taper, to avoid unwelcome attention from sinister tax officials.
A further and more radical change affects the lifetime allowance. This currently stands at a little over £1m, and results in a substantial tax charge if a pension fund exceeds that value when benefits begin to be taken from the scheme. This tax charge is to be abolished altogether. These pension tax changes have been presented as a way of enticing older, non-working individuals back into the workforce. It remains to be seen whether anyone, anywhere will respond to the inducement.
Other tax changes which will be enacted in the Finance Act 2023 have been trailed previously. These include anti-avoidance provisions directed at UK resident foreign domiciliaries. Under the new provisions it will generally no longer be possible for a foreign domiciled individual to transfer shares in a UK company to a non-UK holding company, in exchange for shares in that holding company, and take fiscal advantage of the fact that the shares so acquired are non-UK situated for CGT purposes. These provisions will have effect in relation to share for share exchanges since 17 November 2022, when the measures were originally announced.
Also trailed previously but worthy of note is the forthcoming amendment of the tax definition of ‘charity’. Since April 2010 the term ‘charity’ has encompassed charitable organisations in (other) EU member states, if they meet certain conditions. This has meant that UK taxpayers have been able to obtain tax relief on gifts to such organisations, for example under the gift aid scheme. However, with effect from 15 March 2023, the position will revert to that which applied before April 2010. In other words, an organisation will only have the potential to qualify as a charity for tax purposes if it is established within the UK.
The government has stated that: ‘Restricting UK tax reliefs to UK charities … takes advantage of opportunities arising from the UK's exit from EU. Having left the EU it is right that UK taxpayer money should support UK charities.’ There is of course a certain logic to this. However, some might view the change as retrogressive. It is probably fair to say that the ability to make tax-favoured gifts directly to charitable organisations based elsewhere within Europe has been little used by UK taxpayers, but it was nice to have that ability, and it signalled some acceptance of the proposition that philanthropy should not be obstructed by national borders. The amended definition will mean that philanthropy once again has frontiers. Where tax-efficient charitable giving is concerned, ‘everywhere’ is no longer an option.
Home >Articles > Spring Budget 2023: private client - improving everything, everywhere, all at once?
Spring Budget 2023: private client - improving everything, everywhere, all at once?
‘Everywhere’ was a crucial buzzword in Jeremy Hunt’s Budget speech, emphasising the government’s commitment to generating economic growth across the UK rather than just in London. Some listeners might have wondered whether, in promising to improve everything everywhere, Mr Hunt was riffing on the title of a certain award-winning film. However, any hopes that the Budget speech would turn into a surreal multi-dimensional adventure involving taxes and laundry were duly dashed. There was no cleaning, unless you count clean energy, and there was surprisingly little on personal tax.
In this area the most striking announcements were undoubtedly on pensions. That is a word which induces a Pavlovian response, characterised by a slowing of pulse and drooping of eyelids. But before you yield to the urge to curl up under your desk for a cheeky doze, the pension changes announced by Mr Hunt really were mildly exciting for many workers, particularly older individuals with more substantial pension funds and/or the capacity to contribute more to their pensions.
One key change concerns the annual allowance, the amount which an individual can contribute to a pension in a single tax year without tax relief on such contributions being clawed back. That amount was originally £215,000, but has been savagely cut back in recent years and this year stands at just £40,000. Moreover, tapering rules apply to higher earners, which have the effect that for many, the maximum amount that can be contributed tax-efficiently to a pension is a paltry £4,000 per annum. Increases to the annual allowance and adjustments to the tapering rules mean that from April 2023, there will be scope for many workers to increase their pension contributions, without being penalised for doing so. However, close attention will need to be paid to the taper, to avoid unwelcome attention from sinister tax officials.
A further and more radical change affects the lifetime allowance. This currently stands at a little over £1m, and results in a substantial tax charge if a pension fund exceeds that value when benefits begin to be taken from the scheme. This tax charge is to be abolished altogether. These pension tax changes have been presented as a way of enticing older, non-working individuals back into the workforce. It remains to be seen whether anyone, anywhere will respond to the inducement.
Other tax changes which will be enacted in the Finance Act 2023 have been trailed previously. These include anti-avoidance provisions directed at UK resident foreign domiciliaries. Under the new provisions it will generally no longer be possible for a foreign domiciled individual to transfer shares in a UK company to a non-UK holding company, in exchange for shares in that holding company, and take fiscal advantage of the fact that the shares so acquired are non-UK situated for CGT purposes. These provisions will have effect in relation to share for share exchanges since 17 November 2022, when the measures were originally announced.
Also trailed previously but worthy of note is the forthcoming amendment of the tax definition of ‘charity’. Since April 2010 the term ‘charity’ has encompassed charitable organisations in (other) EU member states, if they meet certain conditions. This has meant that UK taxpayers have been able to obtain tax relief on gifts to such organisations, for example under the gift aid scheme. However, with effect from 15 March 2023, the position will revert to that which applied before April 2010. In other words, an organisation will only have the potential to qualify as a charity for tax purposes if it is established within the UK.
The government has stated that: ‘Restricting UK tax reliefs to UK charities … takes advantage of opportunities arising from the UK's exit from EU. Having left the EU it is right that UK taxpayer money should support UK charities.’ There is of course a certain logic to this. However, some might view the change as retrogressive. It is probably fair to say that the ability to make tax-favoured gifts directly to charitable organisations based elsewhere within Europe has been little used by UK taxpayers, but it was nice to have that ability, and it signalled some acceptance of the proposition that philanthropy should not be obstructed by national borders. The amended definition will mean that philanthropy once again has frontiers. Where tax-efficient charitable giving is concerned, ‘everywhere’ is no longer an option.
