March 2023 Budget Summary

Headlines are:

• Full expensing for capital expenditure for at least the next three years
• Abolition of the pension lifetime allowance
• Increase in annual allowance for pension contributions from £40,000 to £60,000

For many small businesses the new capital allowance regime will be of little consequence as they have been claiming 100% Annual Investment Allowance (AIA).

The abolition of the pensions lifetime allowance was part of a range of measures to encourage people to continue working beyond an age when they may previously have opted to retire. The Chancellor cited doctors as a key demographic for which this was a big disincentive to continue working.

Here is a reminder of the key tax changes from last year’s Autumn Statement which come into effect from April 2023:

• Reduction of additional rate tax threshold: the additional rate tax threshold reduces from £150,000 to £125,140 exposing more taxpayers to the 45% tax rate.
• Increase in Corporation Tax: the main rate of Corporation Tax increases from 19% to 25% for businesses with profits exceeding £250,000. Businesses with profits under £50,000 will continue to pay tax at 19%.  Those in between will be subject to a marginal rate of 26.5% on profits falling within the range £50,000 to £250,000.
• Reduction in Dividend Allowance: the tax-free allowance for dividend income reduces from £2,000 to £1,000.
• Reduction in the CGT Annual Exemption: The Capital Gains Tax (CGT) Annual Exemption reduces from £12,300 to £6,000.
• CGT changes for divorcing couples: spouses and civil partners who are in the process of separating will have more time to transfer assets between them without incurring CGT liabilities.  Previously separating couples had until the end of the tax year of their separation.