On 15th March 2023 Jeremy Hunt, the UK’s Chancellor of the Exchequer, delivered the UK spring budget. We look at the major change to pension allowances that may be of interest to UK expats living in Asia.
Jeremy Hunt’s spring budget for 2023 was delivered against a backdrop of relatively poor growth and household incomes that are decreasing in real terms. He has the unenviable task of balancing tight spending plans over the next few years with a large increase in the overall tax burden and high borrowing.
The budget’s main aims were to increase growth and get people into work. Of the measures announced, some of the most debated changes related to pension allowances. These are expected to incentivise higher earners who will be able to claim relief on higher contributions than previously.
Pension lifetime allowance abolished
The Lifetime Allowance (LTA) was a cap of £1,073,100 on lifetime savings. Private pension savings which exceeded that amount triggered an extra tax charge. This applied to all UK pensions with the exception of the UK State Pension & QNUPS.
In a shock move from the Chancellor, the Lifetime Allowance was axed in the spring budget. As of April 2023, individuals will be able to save as much as they like into an overall UK pension without incurring additional taxes.
Experts predict that this change will spark an influx of cash into pensions because the Lifetime Allowance had caused many people to stop saving into pensions to avoid reaching the cap. It will also make retirement planning less complicated for those retiring from next month.
Annual pension allowance increased
Annual pension allowance limits will still apply but these have also been increased. The annual allowance is the maximum amount an individual can save into a pension pot in a single tax year before having to pay tax on it.
In the spring 2023 budget, Hunt increased the annual pension allowance from £40,000 to £60,000 hoping the increase will stop individuals from leaving the workforce for tax reasons.
Tapered annual pension allowance and money purchase annual allowance were both increased from £4,000 to £10,000 and the threshold for annual allowance taper was upped from £240,000 to £260,000.
There were no significant changes to income tax, capital gains tax and inheritance tax in this latest budget.
Please bear in mind that this article is not intended to be taken as personal advice. How the new rules will affect you depends on your personal circumstances.
If you have questions about your financial planning relating to the UK spring budget 2023, please get in touch with your financial adviser.
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