March 15, 2023

Chancellor Jeremy Hunt's Spring Statement, billed the "budget for growth" comes against the backdrop of continuing fragility in public finances. Yet it confirms the UK is expected to avoid a "technical recession" in 2023, while inflation is predicted to fall to 2.9 percent by the end of the year .

Hunt's measures aim to steady concerns about high inflation and a cost-of-living crisis by focusing on reducing debt, boosting economic growth, halving inflation and encouraging people over 50 back into work.

There was no increase to headline tax rates, but the personal income allowance reductions and frozen thresholds announced in the Autumn Budget will remain and will impact both earned and unearned income.

Key points relevant to you

Pension lifetime allowance abolished, and annual allowance increased

The limits on how much individuals can contribute to their pension while still obtaining tax relief have been increased to a £60,000 annual allowance (up from £40,000) from April 2023.

Limits on the total amount individuals can accumulate through pensions without being subject to a tax charge will be removed (previously £1.073m) from April 2023.

Impact: Those still accumulating wealth may see this as an opportunity to accelerate growth of their retirement pot. However, with the annual allowance still tapered down for higher earners, certain individuals will remain restricted to an annual allowance as low as £10,000 per year (see below).

Money Purchase Annual Allowance (MPAA) and tapered annual allowance

MPAA reduces the annual allowance for those who have already accessed income from their pension. The previous reduction to £4,000 will be increased to £10,000 from April 2023.

The tapered annual allowance reduces the amount high earners can contribute to their pension tax efficiently. The minimum tapered allowance will be increased from £4,000 to £10,000 from April 2023. The adjusted income threshold of earnings for when the allowance begins to taper (by £1 for every £2 of earnings) will also be increased from £240,000 to £260,000 from April 2023.

Impact: Combined with the enhanced lifetime allowance, individuals who have previously accessed their pension but have relevant earnings and can afford to contribute, may seek to continue building their retirement pot. Similarly, those who were previously tapered may now be able to contribute significantly more to their pensions each year. While the generous inheritance tax (IHT) exemption on pensions remains, those who have not maximised their allowances and are looking for ways to shelter assets from IHT while retaining access, may be tempted to make further contributions.

Pension commencement lump sum (PCLS)/tax-free cash

The maximum PCLS (or commonly known as tax-free cash) for those without protections, will be retained at its current level of £268,275, or 25 percent of the pension fund if lower. It will be frozen at this maximum level going forwards.

Impact: For larger pension funds, inflation will erode the value of this fixed tax-free cash amount. This may make it more attractive for individuals to access their tax-free cash earlier and re-invest back into other tax-efficient vehicles such as ISAs, which could continue to grow tax free.

Income tax

No further change since the Autumn Budget, but a timely reminder the 45 percent tax threshold is to be reduced from £150,000 to £125,140 from April 2023. Personal allowance, basic and higher rate thresholds remain fixed until April 2028.

Impact: Individuals earning £150,000 or more pay an additional £1,200 per year. The freezing of other rates will drag more earners over the higher threshold and thus reduce real earnings.


No further change since the Autumn Budget that outlined the dividend allowance will be cut from £2,000 to £1,000 in April 2023, and £500 by 2024.

Impact: Individuals utilising their full personal income tax allowance will still be up to £590 worse off by 2024.

Capital gains tax

No further change since the Autumn Budget. The capital gains tax allowance will still be cut from £12,300 to £6,000 in April 2023, and £3,000 in April 2024.

Impact: Individuals utilising their full allowance will still be up to £2,600 worse off from April 2024 for gains on residential property, and £1,860 worse off from April 2024 for gains on other chargeable assets.

Corporation tax

No further change since the Autumn Budget. Corporation tax will still be increased to 25 percent in April 2023.

Impact: This will increase the tax drag on gains within corporate entities, which coupled with a reduced dividend allowance, will make extracting profits from family investment vehicles more costly.

Actions to consider

While the increase to the pension annual allowance and the removal of the lifetime allowance will come as good news to many, certain higher earners may still be restricted to an annual allowance as low as £10,000 per year.

Those who have not maximised their allowances or were previously tapered may look to boost their pensions. Whilst the IHT exemption on pensions remain, this may be particularly effective for clients looking for ways to shelter assets from IHT while retaining access.

Individuals may also consider a higher growth investment strategy for their pension funds considering the abolishment of the lifetime allowance. Clients should seek guidance on the impact of these multiple changes on their pension planning.

Clients may take comfort in no increases to headline rates, but the reduction in allowances announced in the Autumn Budget will remain. This will leave personally invested, non-property assets, more exposed to capital gains taxes at 20 percent, and dividends at up to 39.35 percent.

For those seeking to manage this impact, there remains a range of tools available; from ISAs and pensions to international bonds and family investment vehicles, as well as a number of schemes that reduce tax liabilities such as Enterprise Investment Schemes and venture capital trusts.

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