Jeremy Hunt was brought in as Chancellor last Autumn by Liz Truss amid the fallout from the Mini Budget. Ms Truss herself did not survive much longer, and after being kept in post by Rishi Sunak, Mr Hunt delivered his Autumn Statement, in which he announced a package of tax rises and spending cuts worth £55bn. 

Four months later, Mr Hunt finds himself in the unusual position of becoming just the second of the past five chancellors to hold a full Budget – the last one being Mr Sunak himself. As ever, the Chancellor must juggle different priorities, from managing global economic headwinds and tackling the cost-of-living crisis, to boosting productivity and encouraging more businesses to invest in the UK. 

The year started with a cautious hope that the UK may be over the peak of the inflation crisis. According to the Office for National Statistics (ONS), overall UK consumer price inflation fell from 10.5% in December to 10.1% in January – this was the third monthly fall in a row. However, it must be said that inflation remains well above the Bank of England’s target of two per cent, and many of the factors that have pushed up prices over the last year, notably Russia’s invasion of Ukraine, still exist. 

There were further grounds for optimism in the latest economic figures, which showed that following a sharp fall of 0.5% in December, GDP grew by 0.3% in January. But looking more broadly, growth was found to be flat in the three months to January, so again, the picture is mixed. Meanwhile, interest rates have risen to their highest level for 14 years, with the Bank of England’s Monetary Policy Committee voting last month to raise the benchmark rate by 0.5% to 4%. This is the tenth interest rate rise in a row. 

Many of the issues that will impact upon our clients were presented in the Autumn budget last year. We note some comments about the impact of these below and will cover them further in newsletters and client meetings.There were no magical ‘rabbits pulled out of the hat’ moments but there was a somewhat controversial proposal relating to pensions.  

Clearly, Jeremy Hunt faced a very challenging backdrop as he rose to speak, so let’s take a look at what he announced. 

Extension of support for energy bills 

The Chancellor has announced that the £2,500 energy price guarantee on energy bills will be extended on the 1st of April by 3 months. This should save the typical household £160. However, the £400 energy support will end at the end of this month. 

Pension Reforms 

The annual tax-free allowance for pensions will rise from £40,000 to £60,000 from April 2023. Also, the money purchase annual allowance will increase from £4,000 to £10,000 as of April 2023.  

For those with tapered annual allowance, there will be an increase from £4,000 to £10,000 from April 2023. The adjusted income figure will be uprated from £240,000 to £260,000. 

The lifetime allowance (set at £1.07 million) will be abolished altogether from April 2024. Withdrawals in excess of the LTA over the next year will not suffer a charge but will effectively be charged a rate of 0%.  

It had been claimed that the lifetime allowance was preventing doctors from working longer hours or retiring late because of concerns over tax on their pensions and that this move will encourage them to remain in the labour market for longer.  

We will wait to see if this transpires, but this change will be of interest to many higher earners as it is not limited to doctors. It gives scope for planning opportunities to relieve the impacts of other changes to tax thresholds made in the autumn budget. 

State Pensions 

Good news for those on state pensions. From April 2023, the state pension will rise by 10.1% due to the reinstating of the triple lock. This will increase the weekly 'new single tier' pension payment to £203.85. 

Income Tax 

There have been no changes announced for the personal allowance and tax bands. The freeze announced in the Autumn Statement remains. As announced in the Autumn Statement, the dividend allowance will decrease to £1,000 from April 2023 and then down to £500 in 2025. 

The freezing of tax thresholds means that more and more clients will be pulled into a higher rate tax threshold or have an increase on taxable income. In many cases, some financial planning can help to manage tax liabilities but it's fair to say that despite the pension loosening, we are seeing the unusual sight of the imposition of wealth taxes by a Conservative government. 

ISAs 

The allowance for adult and junior ISAs is set to remain the same. For an adult the allowance is £20,000 and £9,000 for juniors. 

Trusts 

From the next financial year (2024/25), trusts receiving income of up to £500 will not pay income tax.  

Discretionary trusts currently benefit from a £1,000 standard rate band. This means that the first £1,000 of income will be taxed at 20% or the dividend ordinary rate of 8.75%. This will be abolished for the next tax year (2024/25) 

Corporation Tax 

The main rate of corporation tax will rise to 25% with the small profits rate set at 19% for this financial year (2023/24) and will remain for the following year. 

These changes in tandem with reduced dividend allowances will start to impact on owner/director businesses, who have paid themselves largely via dividends rather than salary. It might well be an opportune time to revisit remuneration strategies and consider options such as pensions, especially with an increased annual allowance. 

Capital Gains Tax 

Capital Gains Tax allowances will be reduced over the next couple of years. This means that it will be likely that clients with investments held outside of pensions and ISAs will incur more tax on investment over the coming years.  

The changes impact on the tax efficiency of certain investment strategies that we have adopted in the past for clients. Given that changes are being phased in and that we have an election within a couple of years, we would be unlikely to make significant changes. But we will be reviewing investment options for the future.Your adviser will discuss how these changes might affect you at a review.  

Inheritance Tax 

The nil rate band threshold of £325,000 and residence nil rate band of £175,000 will remain frozen for 5 years. More estates will be pulled into an inheritance tax liability despite relatively generous allowances. The removal of the pension lifetime allowance, announced in this budget, does increase the scope of pensions as an inheritance tax planning tool for some clients. We are always happy to discuss strategies that you can take to mitigate these risks. 

Fuel Duty

The 5p cut in fuel duty will remain and will be frozen for 12 months. This should help drivers to save around £100 per year. 

Carbon Capture 

The Chancellor has allocated up to £20 billion of support for the early development of carbon capture, usage and storage starting with projects from the East coast to Merseyside. However, there was no mention of Scotland. This investment aims to provide support for 50,000 jobs, attract further investment and capture up to 30 million tonnes of CO2 by 2030.  

Sadly, little announced to address net zero targets, climate change or clean energy initiatives. 

Funding for the devolved nations 

There will be £320 million of funding for Scotland, £180 million for Wales and £130 million for the Northern Ireland executive.  

Additionally, there are interesting moves afoot to devolve more financial control to English Metro Mayor areas - giving them greater freedom to develop economic and infrastructure initiatives.