After the National Insurance increases announced in September 2021, this budget was much of a “damp squib” compared to the rumours leading up to the Budget. Please see below the summary of the key points:
State Pension increase
The government confirmed the previously announced change to the increase in the State Pension for next year. This involves suspending the earnings element of the triple lock meaning the increase will be based on the higher of the Consumer Price Index (CPI) or 2.5%. The annual growth in
earnings was distorted during the coronavirus pandemic due to people coming off furlough. As the relevant CPI figure has already been announced by the Office of National Statistics as 3.1%, the State Pension will be increased by CPI next tax year.
Normal Minimum Pension Age
As previously announced, the government will legislate in Finance Bill 2021/22 to increase the earliest age at which most pension savers can access their pensions (the normal minimum pension age) from 55 to 57. This increase will take effect from 6 April 2028.
Regulatory Charge Cap
The government will consult on the regulatory charge cap for defined contribution pension schemes. This will consider options to amend the scope so that the cap can better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses.
Pension Net Pay Arrangement Call for Evidence
The government will introduce a system to make top-up payments directly to low-earning individuals saving in pension schemes using a net pay arrangement from 2024/25 onwards. These top-ups will be paid after the end of the relevant tax year, with the first payments being made in 2025/26 and continuing thereafter. The top-ups will help to better align outcomes with equivalent savers saving into pension schemes using relief at source
Pension Tax Relief
No changes were announced to this other than the above top up for low earners.
As per previous budget, the pension lifetime allowance will be maintained at the current level of £1,073,100 until April 2026.
The annual allowance remains at £40,000 for 2022/23.
The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000.
The junior ISA annual subscription limit for 2022/23 will remain unchanged at £9,000.
No further changes announced. The personal allowance will remain frozen at £12,570 with the basic rate band also remaining frozen at £37,700, meaning that the higher rate tax threshold remains at £50,270. The personal allowance and higher rate threshold will remain fixed until 2025/26.
The rate of tax for dividends will increase by 1.25%. This will mean the new dividends rates for individuals will be 8.75% (basic), 33.75% (higher) and 39.35% (additional).
No further changes announced. The inheritance tax threshold will be maintained at the existing level of £325,000 until April 2026.
Capital Gains Tax
No further changes announced. The annual exempt amount will remain frozen at £12,300 for individuals (and personal representatives) and to £6,150 for trustees of settlements, until 2025/26.
No further changes announced. Corporation tax is set to rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits under £250,000 so that they pay less than the main rate.
The Budget confirmed that an extra 1.25% will be added to the rates of National Insurance for 2022/23 for employees, employers and the self-employed to help pay the reforms to social care. It’s intended that the 1.25% rise will become a separate standalone levy from 2023/24.
For more information on the budget and how it might effect you, please contact the Willis Wealth Management team on 028 9032 9042
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