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2023 pension rule changes: How do they affect you?

The last spring budget came with some good news for those looking to find tax-efficient ways to invest, especially in the pension space. The Chancellor, Jeremy Hunt, announced plans to scrap the lifetime allowance and to increase the tax-free annual allowance for those investing in a pension.

The annual amount that people will be able to contribute in a pension wrapper like SIPP will increase from £40,000 to £60,000 from 6 April 2023, or your annual salary, whichever is lower. Also, from 2024, there will no longer be a limit on how much people can invest in a pension over a lifetime.

In addition, the government increased the money purchase annual allowance (MPAA) to £10,000 from £4,000. This means that people who are still earning income, but have already taken income from their pensions, would be able to contribute up to £10,000 into this tax-free wrapper. Conveniently this would be separated from your estate for inheritance tax purposes.

Finally, in the spring budget, the adjustment of the tapered annual allowance was good news for high earners. Tapered annual allowance gradually squeezes, to a minimum £4,000, the tax-free pension allowance for those earning more than £240,000 a year. As of 6 April 2023 the minimum amount they can be tapered to will increase to £10,000.

It’s important to put these measures in context. Starting from next year, the capital gain allowance will be significantly reduced. Previously, people could make up to £12,300 in capital gains in a single tax year without paying any capital gains tax. However, from the 6th of April, this was reduced to £6,000 and next year will become £3,000. The ease on the limits for pension investment offers some wiggle room to all who want to plan their retirement in a tax-efficient way (with significant consequences for inheritance planning and financial planning in general). If you wish to understand if any of the measures introduced impact your position or your planning, ahead of the tax deadline on the 5th of April, our team can support you in that.

It’s more important than ever to take advantage of the allowances that the government offers to investors. This is done by optimising, when possible, your financial planning, moving savings towards tax wrappers such as ISA and SIPP.

In July, the Chancellor went further with his Mansion House speech, which included a number of important pension reforms. 

One of the key takeaways from this address was the plan to boost the allocation of private UK companies in major pension funds by 5% by 2030. This move looks to increase the chances of sustainable growth for the UK in the long term by adding the capital infrastructure necessary to achieve this. 

It’s worth remembering that most people’s financial future is tied to the performance of the UK economy, including their income, real estate value and currency valuations. Diversifying your financial risk where you can, by investing in the global economy, may be a sensible idea.

If you want to understand how the last budget is affecting you, or you want to review your current approach in light of that, we encourage you to reach out to our team by calling, emailing or booking an appointment.

As with all investing, your capital is at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure whether investing is the right choice for you, please seek financial advice.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.