State Pension
The state pension will increase by 10.1% in line with the September Consumer Price Index increase to £10,600 a year (£204 a week)This will begin in April 2023 at the start of the new tax year.
If you are approaching State Pension age it is worthwhile checking your State Pension Forecast (https://www.gov.uk/check-state-pension). If you are unlikely to receive the full state pension you may be able to pay voluntary national insurance contributions to top up missing year contributions. This may mean you are then eligible for the full state pension.
Income Tax and Pension Contributions
Disadvantages
Capital Gains and Dividend Income
The tax-free dividend allowance reduction will have an impact on those who work as directors for limited companies and are paid via dividends, as well as those whose rely on dividend income from shares to fund their retirement.
Considerations
Now is a good time to review any capital gains you may have, and ensure that you are utilising as much of the tax wrappers available to you.
Please get in touch with your advisor if you have concerns following these changes or if you wish to use your annual allowances this year, they will be able to discuss the most suitable options available to you.
Inheritance Tax Allowances
Energy Payments
The energy price guarantee was previously £2,500. With the addition of the £400 cost of living payment that was given to households this year, it was effectively reduced to £2,100. As the price guarantee is now £3,000 those who are not in receipt of means tested benefits or the £300 payment to pensioners will likely see a £900 increase in the cost of energy payments in 2023.
There have been a lot of new measures introduced in the budget, and it is likely that some of these may cause you to consider your position in the markets and your future plans whether you are retired or planning for retirement.
Please do get in touch with your advisor to discuss any concerns you may have, as they will be best positioned to tailor solutions to your needs.
The state pension will increase by 10.1% in line with the September Consumer Price Index increase to £10,600 a year (£204 a week)This will begin in April 2023 at the start of the new tax year.
If you are approaching State Pension age it is worthwhile checking your State Pension Forecast (https://www.gov.uk/check-state-pension). If you are unlikely to receive the full state pension you may be able to pay voluntary national insurance contributions to top up missing year contributions. This may mean you are then eligible for the full state pension.
Income Tax and Pension Contributions
- The basic rate of income tax will remain at 20% and the additional rate 45% until 2023/24
- The basic and higher rate tax bands have been frozen until 2028. Many people will move in to higher bands.
- The additional rate tax band has been altered. The 45% rate will now be payable on any income above £125,140 from April 2023.
- There have been no reductions in tax relief on pension contributions despite there being talk of doing so. You can still utilise the relief available to you in order to give your pension the best chance of potential growth.
- Those within the basic rate continue to benefit from 20% tax relief rather than the previously proposed 19%. With the tax relief for additional tax rate payers remaining at 45% rather than the 40% announced in September.
- A higher level of tax relief will be available to those earning between £125,140 and £149,999. It will cost you £500 less to put £10,000 into your pension.
Disadvantages
- A higher level of income tax payable
- Those who are paid between £125,140 and £149,999 will be paying 5% more on any earnings over £125,140.
- As wages and inflation rise the tax thresholds remain the same. Tax thresholds usually keep up with inflation, however the freeze means a real term wage deficit which will push more tax payers into higher tax brackets. This is referred to as fiscal drag, and allows the government to increase tax revenue without increasing the rate of tax.
Capital Gains and Dividend Income
- Capital gains tax allowances will be halved from £12,300 to £6,000 in April 2023. Then halved again to £3,000 in April 2024.
- The tax-free dividend allowance will be also be halved from £2,000 to £1,000 from April 2023 and then halved again in to £500 in April 2024.
The tax-free dividend allowance reduction will have an impact on those who work as directors for limited companies and are paid via dividends, as well as those whose rely on dividend income from shares to fund their retirement.
Considerations
Now is a good time to review any capital gains you may have, and ensure that you are utilising as much of the tax wrappers available to you.
Please get in touch with your advisor if you have concerns following these changes or if you wish to use your annual allowances this year, they will be able to discuss the most suitable options available to you.
Inheritance Tax Allowances
- The Nil Rate Band (NRB) of £325,000 and the Residential Nil Rate Band (RNRB) of £175,000 have now been frozen until April 2028. The NRB is available to everybody, and the RNRB is available to those who are leaving their home to direct descendants or a spouse.
- The taper threshold of £2 million will also remain in place until April 2028. For every £2 over the threshold £1 of the RNRB will be removed. As the RNRB is £175,000 this means any with an estate worth over £2.35 million will not receive any of the RNRB.
- The majority of personal pensions are held out of your estate for Inheritance Tax purposes. Utilising your pension allowance will increase the potential for growth, and may remove part or all of your current liability.
- Most estates will grow over time and this will contribute to a rise in the number of people with IHT liabilities and those impacted by the taper threshold. It is worth discussing any concerns you may have about IHT liabilities with your advisor, as there are strategies that can be explored to mitigate some of these liabilities including the use of trusts.
Energy Payments
- The Energy Price Guarantee has been changed to £3,000, up from £2,500
- £900 payment for households on means tested benefits
- Pensioner households will receive a £300 cost of living payment on top of their winter fuel payments
The energy price guarantee was previously £2,500. With the addition of the £400 cost of living payment that was given to households this year, it was effectively reduced to £2,100. As the price guarantee is now £3,000 those who are not in receipt of means tested benefits or the £300 payment to pensioners will likely see a £900 increase in the cost of energy payments in 2023.
There have been a lot of new measures introduced in the budget, and it is likely that some of these may cause you to consider your position in the markets and your future plans whether you are retired or planning for retirement.
Please do get in touch with your advisor to discuss any concerns you may have, as they will be best positioned to tailor solutions to your needs.