Budget 2023 – Annual/Lifetime Allowances

The Chancellor’s Spring 2023 budget took place on 15^th March 2023. It was a huge surprise that there have been a significant amount of pension changes including within this budget.

These are summarised below:

• Increase of the Annual Allowance from £40,000 to £60,000. This means that the growth in your annual pension can be up to £60,000 rather than the previous allowance of £40,000. More of your pension growth will therefore be tax free.
• The way in which your pension growth is calculated for Annual Allowance purposes is also changing. Currently if your pension has increased at a slower rate than the inflation applied for the growth calculation, you may have a negative growth position (this can also be the case where pensionable pay may have decreased). If this were the position, this would reflect as a zero-growth amount. From 6 April 2023 the negative will be taken into account for any additional/ future pensions growth calculations.
• Removal of the Lifetime Allowance charge from April 2023: The Lifetime Allowance has been in place since 2006 and is the cap on the overall value of tax-free pension savings at retirement. If total benefits at retirement exceed this allowance then this is a tax charge to pay. This Allowance/ requirement to pay any Lifetime Allowance tax will be removed from April 2023.
• The amount of tax-free lump sum available at retirement will be 25% of the capital value of the pension or £268,275 – whichever is the lower. This is similar to the current rules within the existing Lifetime Allowance. However, once the allowance is removed in April 2023, the maximum tax-free lump sum will remain at £268,275 unless you have a form of Lifetime Allowance protection in place before 15 March 2023.
• In the event that you take a cash sum above this tax-free limit you will now pay tax on the excess at your marginal rate of income tax. This has been reduced from 55%.

We are in the process of contacting all our clients about how this will affect them. In the meantime, if you have any concerns, please get in touch.