The UK Spring Budget 2023
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The Spring Budget on 15 March 2023 was a fairly low-key budget. The focus was more on controlling inflation, growing the economy and reducing public debt. Many of the changes for the new tax year were known in advance from earlier statements and the aim was definitely one of keeping a steady course.
Prior to the Budget, there were rumours of possible changes to rules affecting UK resident foreign domiciliaries – where options might have included shortening the time period before being deemed domicile in the UK or increasing the annual charge to claim the remittance basis of taxation. In the end there was no mention of UK resident foreign domiciliaries, other than the confirmation that legislation will be introduced to deem securities acquired in a non-UK company to be located in the UK for CGT purposes so that the remittance basis of taxation is not accessed on income and gains arising from the securities.
In 2022 the introduction of a wealth tax had been debated, and ruled out by the current government, and there was no mention of wealth tax in this statement.
The proposed increase in corporation tax from 19% to 25% from 6 April 2023 had already been reinstated by the Chancellor last autumn. The 25% rate will affect businesses with profits in excess of £250,000. Companies with profits between £50,000 and £25,000 will pay a tapered corporation tax rate between 19% and 25%. The government said that the UK still has the lowest rate of corporation tax in the G7, with Germany and Japan having rates of nearly 30% in contrast.
To encourage business investment, other reliefs and allowances for companies include permanently setting the Annual Investment Allowance at £1 million to give tax relief on qualifying plant and machinery investments in the year of investment. Full expensing (from 1 April 2023 – 31 March 2026) will be introduced to enable companies across the UK to write off the full cost of qualifying main rate plant and machinery investment.
Likewise, the personal allowances had been frozen or already reset in the autumn statement. The personal allowance of £12,570 is frozen for the tax year 2023 / 24, and the income limit for personal allowance is frozen at £100,000. The dividend allowance reduces to £1,000 for 2023 / 24 from £2,000, and the personal savings allowance for basic and higher rate tax payers is frozen at, respectively, £1,000 and £500. The capital gains tax annual exemption amount for individuals also reduces from £12,300 to £6,000 from April 2023. The ISA subscription limit remains at £20,000 for 2023 / 24.
Individuals who provide investment services to investment funds and receive sums of carried interest that are taxed in more than one jurisdiction should be helped by the proposal to introduce legislation that will enable them to make a voluntary and irrevocable election for carried interest to be taxed in the UK on an accruals basis. This should enable double taxation relief to be claimed which previously had been difficult.
Significant pension changes were announced with effect from 6 April 2023. The announcement of the abolition of the Lifetime Allowance (the amount an individual can accumulate in pension savings before having to pay extra tax on it, currently £1.07 million) was unexpected, but note that there will be a freeze on the maximum figure of £268,275 for the tax free withdrawal of lump sum on commencement. The tax free annual allowance will also rise from £40,000 per year to £60,000, and the minimum tapered annual allowance will rise to £10,000 from £4,000. Higher earners will still be restricted in what they can save, and it should be noted that Labour has announced that they would reverse the abolition of the Lifetime Allowance cap if they take power.
A couple of changes reflected the UK’s exit from the EU. Those who own agricultural land will want to be aware that, with effect from 6 April 2024, agricultural property relief and woodlands relief from inheritance tax will be restricted to property in the UK. And charitable tax reliefs have been restricted to UK charities from 15 March 2023, although there are some transitional provisions to April 2024 where a charity has asserted its status for charitable tax reliefs.
The debate on how to stimulate economic growth continues. The jury is out on whether this budget will do so.
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