THE Spring BUDGET 2023

This Summary covers the key tax changes announced in the Chancellor’s speech.

We recommend that you review your financial plans regularly as some aspects of the Budget will not be implemented until later dates.

We will, of course, be happy to discuss with you any of the points covered in this report and help you adapt and reassess your plans in the light of any legislative changes.

Significant points.

  • Personal tax rates and allowances on income and capital gains, and National Insurance Contributions, confirmed for 2023/24 as  announced in the Autumn Statement
  • Pension savings thresholds significantly increased: from 6 April 2023, Annual Allowance rises from £40,000 to £60,000 and Lifetime Allowance Charge is abolished; maximum tax-free lump sum remains 25% of Lifetime Allowance, i.e. £268,275
  • Confirmation of corporation tax rate increase from 19% to 25% from 1 April 2023 on profits over £250,000 and marginal rate of 26.5% on profits between £50,000 and £250,000
  • ‘Super-deduction’ for plant and machinery bought by companies up to 31 March 2023 replaced by 100% first-year allowance for qualifying capital expenditure, without upper limit, for three years from 1 April 2023
  • Energy Price Guarantee retained at £2,500 for the average household for another 3 months to 30 June 2023
  • Significant expansion of free childcare provision to be phased in from April 2024

Personal Income Tax.

The main personal allowance and the 40% threshold will remain at their 2022/23 levels until the end of 2027/28.

This represents a tax increase where income rises from year to year. For example, a person with a salary of £50,270 would pay £7,540 in income tax in 2022/23; if their income increases by 10% to £55,297 in any of the years to 2027/28, all of the increase will be taxed at 40%, and they will pay £9,551.

The income level above which the personal allowance is tapered away remains £100,000; it will be reduced to zero when income is £125,140. For 2023/24, this is also the threshold for paying 45% tax (reduced from £150,000). For someone earning over £150,000 purely in salary, this represents a tax increase of £1,243. The amount varies if income includes dividends, which are subject to different rates.

The High Income Child Benefit Charge continues to apply to the higher earner of a couple where one receives Child Benefit and either of them has income of more than £50,000. The clawback of the benefit creates a high effective marginal rate of tax until it is all withdrawn once income reaches £60,000.

Dividend income.

The dividend allowance exempts some dividend income from tax, although it still counts towards the higher rate thresholds. For 2023/24, the allowance is reduced from £2,000 to £1,000, and it is to be reduced again to £500 for 2024/25. This increases the tax liabilities of those with dividend income above those levels, and will also require more people to file tax returns to declare those tax liabilities.

The tax rates on dividend income over £1,000 remain unchanged from the tax year 2022/23. The ordinary rate, paid by basic rate taxpayers, is 8.75%; the upper rate is 33.75% and the additional rate is 39.35%. These rates apply across the UK.

The 33.75% rate also applies to tax payable by close companies (broadly, those under the control of five or fewer shareholders) on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period, where the loan is advanced on or after 6 April 2022.


Company cars and fuel

The charges are currently fixed until the end of 2024/25, and the Autumn

Statement included confirmation of the rates going forward until 2027/28. The rates continue to incentivise the take-up of electric vehicles, even though they can no longer be provided completely tax-free.

The provision of a van available for private use gives rise to a tax charge on a deemed income figure of £3,960 (up from £3,600), plus £757 if fuel is also provided free (up from £688). An electric van available for an employee’s private use does not give rise to a tax charge.

-National Living Wage and National Minimum Wage

The National Living Wage will increase by 9.7% for individuals aged 23 and over to £10.42 per hour from 1 April 2023. Other rates of National Living Wage will rise from the same date by different percentages.

-Company Share Ownership Plans (CSOPs)

As announced in September 2022, the limit on the value of shares that can be subject to CSOP options when granted to employees will be doubled to £60,000 with effect from 6 April 2023, along with some other relaxations to align the rules better with Enterprise Management Incentive (EMI) scheme options and to enable more companies to use the schemes.

-National Insurance Contributions (NIC)

Chancellor announced in the Autumn Statement that the rates and most thresholds will be fixed going forward to the end of 2027/28, and no further changes have been made in the Spring Budget.

-Employment Allowance

The Employment Allowance reduces employers’ NIC for small businesses employing at least two people being paid above the Class 1 NIC Secondary Threshold, if the total employers’ NIC bill did not exceed £100,000 in the previous year. This remains unchanged at £5,000 for 2023/24.

Savings and Pensions

ISA limits

The investment limits for 2023/24 remain £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA – unchanged since 2017/18), and £9,000 for a Junior ISA or Child Trust Fund.

The government intends to restrict the management of these investment funds to financial institutions with a UK presence. This will apply from April 2024.

Pension contributions

The generous tax reliefs given to registered pension funds are limited in amount by two main rules: the Annual Allowance (AA) and the Lifetime Allowance (LTA).

The AA has capped the amount that can be put into a tax-favoured pension fund at £40,000 a year, which is reduced where the person earns over £240,000 a year down to a minimum of £4,000 (at an earnings level of £312,000 or above). Contributions made above the AA by either the individual or their employer are subject to a tax charge.

This has caused difficulties particularly for employees in final salary schemes, where the rules calculate a ‘deemed contribution’ based on their accrued pension benefits at the beginning and end of the year. This can produce unpredictable and substantial tax charges, and has been blamed for some senior doctors deciding to retire early.

From April 2023, the AA is increased to £60,000; the taper will begin at £260,000, and the minimum AA will be £10,000. There is also an increase in the Money Purchase Annual Allowance, which applies where someone has started to draw taxable benefits from a money purchase pension scheme and then wishes to make further contributions: this will also be increased from £4,000 to £10,000.

The LTA has capped the total amount that can be saved in a tax-favoured pension

scheme. This had been reduced several times and in 2022/23 stands at £1,073,100. The Autumn Statement provided for this to be frozen along with other allowances until the end of 2027/28. If the pension fund value exceeds the LTA when benefits are first taken from the fund, and again at age 75, the excess has been subject to a tax charge – 25% if the excess is left in the fund to be drawn as taxable income, and 55% if it is drawn out as a lump sum.

The maximum amount that can be drawn from pension as a tax-free lump sum remains 25% of the current LTA (25% x £1,073,100 = £268,275) unless the person is entitled to ‘protection’ in relation to the original introduction of the LTA or any of the subsequent reductions of the limit. The LTA will be abolished altogether next year and a separate rule will be brought in to limit the tax-free lump sum.

Taking pension benefits

The minimum age at which people can first access their tax-advantaged pension scheme benefits is currently 55, but will be increased to 57 with effect from 6 April 2028. That increase will affect those who were born on or after 6 April 1973.

Seed Enterprise Investment Scheme (SEIS)

As announced in September 2022, the generosity of the SEIS will be increased with effect from 6 April 2023. The amount that companies will be able to raise will increase from £150,000 to £250,000; the gross asset limit will be raised from £200,000 to £350,000, and the age limit on a qualifying trade will be increased from 2 to 3 years. The annual limit for investors will be doubled to £200,000.

Capital Gains Tax

Rates and annual exempt amount

The annual exempt amount would be cut from £12,300 to £6,000 for 2023/24 and to £3,000 for 2024/25. The rates of CGT are unchanged at 10% for basic rate taxpayers and 20% for higher rate taxpayers on general assets, and 18%/28% on residential property and carried interest.

CGT for separating spouses

Currently, tax neutral (‘no gain, no loss’) transfers between spouses (where the recipient takes over the CGT cost of the transferor) are only available where they have been married and ‘living together’ in the tax year. This means that they cease to be regarded as married from the end of the tax year in which they permanently separate, giving relatively little time (particularly if they separate late in a tax year) to organise asset transfers without triggering CGT charges.

Transfers after the end of the tax year of separation are treated as made at market value, which may crystallise a chargeable capital gain for the transferring spouse.

The window for making tax neutral transfers is extended to the earlier of:

  • 3 years following the end of the tax year of separation; and
  • the date of divorce. This will be effective for transfers from 6 April 2023, irrespective of the date of separation. Also, transfers as part of a formal divorce settlement under a court order will take place at no gain, no loss without time limit.

Other changes are:

  • Where they retain an interest in the family home, from 6 April 2023 the departing spouse will be able to elect for their retained interest in the former matrimonial home to continue to be eligible for main residence relief, instead of another property that is  simultaneously eligible for relief; and
  • divorce, but retains a right to a share of the proceeds when the property is eventually sold, the departing spouse’s gain made on disposal of that right

(i.e. when the subsequent sale proceeds are received) will qualify for main residence relief, to the extent it was available on their original disposal.

Inheritance Tax

The Autumn Statement fixed the IHT nil rate band at £325,000 until the end of 2027/28. Holding the threshold at the same amount for 19 years (from 6 April 2009) will bring far more people into the scope of the tax. However, the £175,000 ‘residential nil rate band enhancement’ on death transfers can reduce the impact where it applies. A married couple may now be able to leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent), but the rules are complicated, and the prospect of the nil rate band being fixed for another 5 years increases the importance of proper IHT planning.

Corporation Tax

Rate of tax

On 1 April 2023, the Corporation Tax rate will increase from 19% to 25% for companies with profits over £250,000. Since 1 April 2017, all corporate profits have been taxed at the same rate; the ‘small profits rate’ that was familiar before that will be reintroduced at 19% for companies with profits of up to £50,000. Between £50,000 and £250,000 there will be a tapering calculation that produces an effective marginal rate of 26.5% on profits between these limits, but an average rate on all profits of between 19% and 25%. The limits will be divided between companies that have been under common control at any time in the previous 12 months, whether UK resident or not.

Capital allowances for plant and machinery

The March 2021 Budget introduced enhanced allowances for qualifying expenditure on plant and machinery (P&M) incurred from 1 April 2021 to 31 March 2023 by companies. They can claim:

  • a ‘super-deduction’, providing allowances of 130% on new P&M investment that would ordinarily qualify for 18% writing down allowances (WDAs) in the main capital allowance pool;


  • a first-year ‘special rate allowance’ of 50% on new P&M investment that would ordinarily qualify for 6% WDAs in the special rate pool (e.g. integral plant in buildings).

The intention of the super-deduction was to encourage investment that might otherwise be delayed by companies wanting to claim a deduction against profits taxable at 25%. There are complex rules to prevent the benefit of the super-deduction being relieved at that higher rate.

In the most significant announcement in the Budget, as measured by the total amount of tax involved according to the government’s forecasts, the Chancellor replaced the super-deduction with a 100% first-year allowance (called ‘full expensing’ in the speech) for qualifying new P&M investment by companies for the three years from 1 April 2023 to 31 March 2026. He also said that he intended to make this relief ‘permanent’ as soon as it was prudent to do so. New ‘special rate’ P&M assets will qualify for a 50% FYA in the same period.

The 100% Annual Investment Allowance (AIA), which is available to unincorporated businesses as well as companies, is confirmed at £1 million a year ‘permanently’.

This has the same effect as a 100% FYA, but it covers some special rate assets as well as general plant and machinery. It also applies to the purchase of second-hand P&M, whereas the super-deduction and new FYA are for investment in new assets.

With limited exceptions, cars do not qualify for the new FYA or the AIA.

Research and Development (R&D)

The government encourages R&D via two different schemes: the ‘enhanced expenditure’ scheme for small and medium enterprise (SME) companies and the Research and Development Expenditure Credit (RDEC) for large companies.

RDEC is a taxable expenditure credit, which increases from 13% to 20% for expenditure from 1 April 2023.

Audio-visual tax reliefs

The film, TV and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from early 2024.

The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%.

Cultural reliefs

The government intends to temporarily extend, for two years, the rate rises of three corporation tax reliefs: Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibition Tax Relief (MGETR).

Value Added Tax

Registration threshold. The VAT registration and deregistration thresholds will remain frozen at their present levels of £85,000 and £83,000 until 31 March 2026.

Healthcare reliefs. The Budget included two measures to ‘keep up with changes in how the NHS operates’. From 1 May 2023, VAT exemption will be extended to healthcare services provided by staff directly supervised by registered pharmacists. In the autumn, zero rating will be extended to medicines supplied on prescriptions through Patient Group Directions.


Other measures

Cost of living support. The Energy Price Guarantee (EPG), which limits the amount that energy suppliers can charge consumers, will be maintained at £2,500 for a further 3 months: it will increase to £3,000 on 1 July 2023 rather than 1 April. The EPG restricts the standard tariff that can be charged so that the amount payable by an ‘average household’ should not exceed the stated figure; the actual energy bills of individual households will vary.

The 5p cut in fuel duty will be retained for the next year, and the rate will be frozen for the second year running.

Childcare. The Chancellor announced significant increases in free childcare in order to

encourage more people to enter or re-enter the workforce. However, the new provision will not be available immediately. From April 2024, working parents of 2 year-olds will be able to access 15 hours of free childcare per week, benefiting parents of up to 285,000 children. This will be extended to working parents of 9 month to 2 year-olds from September 2024, benefiting parents of up to 640,000 children. From September 2025, all eligible working parents of children aged 9 months up to 3 years will be able to access 30 free hours per week. These provisions will apply for 38 weeks a year.

Investment Zones. The Chancellor announced that the government would establish 12 new Investment Zones throughout the UK to provide a catalyst for high-potential knowledge intensive growth clusters.

Foreign charities. The government will restrict charitable tax reliefs to UK charities and Community Amateur Sports Clubs only from April 2023. This is intended to ‘focus UK taxpayer money on UK charities’. EU and European Economic Area charities that HMRC has accepted before 15 March 2023 as qualifying for charity tax reliefs will continue to enjoy those reliefs for a transitional period until April 2024.

Making Tax Digital. HMRC confirmed in December that Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will be delayed by a further two years, until April 2026.

The new legislation will come into effect in April 2026 for businesses, self-employed individuals and landlords with gross income over £50,000, and in April 2027 for those earning over £30,000.