There seems to be a sense of relief lingering around sentiment in UK politics, after a tumultuous couple of years. As the UK sees an improvement in inflation figures from last year, the latest Spring Budget sets out to stimulate the economy in various ways, albeit retaining the rise in Corporation Tax to 25%.
Focusing on personal wealth planning, the positive news is that from 2023/24 the Budget ends the restrictions on those trying to save for retirement by removing the highly complicated and often inequitable Lifetime Allowance. At the same time, there is an increase in the annual pension contribution allowance by £20,000 to £60,000. Higher earners still see their permitted contribution reduced, but this has been increased to £10,000 per annum.
Unfortunately, with these new pension provisions, the amount of tax-free cash that can be withdrawn is limited to 25% of the current Lifetime Allowance, rather than the total pension value if higher.
The abolishment of the Lifetime Allowance may not be permanent. The initial response from the leader of the Labour Party derided the move as benefitting only the wealthiest 1%. Could this move be reversed by a new administration? It was a Labour government that first introduced the limit in 2006 to prevent the very wealthy from benefitting excessively from pension tax reliefs.
The changes do not apply until the next tax year, so there is time to work with your adviser on any potential opportunities arising from the Budget and, if appropriate, refresh your Lifetime Wealth Model (this will be reprogrammed to factor in the removal of the 55% tax charge for pension funds beyond the now abolished Lifetime Allowance). We should, of course, also revisit your personal Tax Optimisation Strategy at your next review. In the meanwhile, please do contact your adviser on any burning questions or matters of concern.
Please click here for a full summary of the Budget covering all announcements and the allowances for the year ahead.
If you would like to discuss any of these matters, or your financial planning in the run-up to the end of the tax year on 5 April, please do contact your adviser. Also, if you have family or colleagues unsure about how the pension changes may affect them and the best way forward, we would be delighted to help.
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