How UK pensions & tax will be changing in 2023
In recent years, the UK government has been making changes to the pension & tax system to ensure that it is sustainable for future generations. These changes are set to continue in 2023, and individuals need to understand how they may be affected. The changes will take place on:
- Pension annual allowance
- State pension age
- Income tax
- Capital gains tax
- Stamp duty tax
- Cost of living payment
Pension Annual Allowance
The Annual Allowance is the maximum amount that you, your employer, and any other parties can contribute across all your pension plans in a given tax year. The standard Annual Allowance is currently £40,000, and any contributions above this amount may be subject to taxes. As part of the current tax freeze, this allowance will remain at £40,000 until 2028.
State pension age
Starting April 2023, the State Pension will experience a 10.1% increase, with pensioners receiving Pension Credits also seeing an equivalent boost. This adjustment aims to ensure that pensioners with the lowest incomes are protected from inflation and don’t lose a portion of their State Pension increase through the Pension Credit means test.
Income tax
In 2023, the tax system in the UK will see a slight change in the tax bands for the additional rate bracket. The threshold for the 45% tax band will be reduced from £150,000 to £125,140 starting from April of 2023. The basic rate (20%) and the higher rate (40%) thresholds will remain unchanged.
This change is expected to bring an additional quarter of a million people under the top tax rate. However, it is important to note that as the Personal Allowance remains frozen at £12,570 until 2028 and inflation is on the rise, it is likely that individuals in lower tax bands will gradually move into higher ones in the coming years.
Capital gains tax:
Capital Gains Tax (CGT) is a levy on profits made from the sale of assets. The tax applies to any gain that exceeds the personal CGT exemption limit. In 2023, this exemption will be lowered from £12,300 to £6,000 starting April and then further reduced to £3,000 from April 2024.
Stamp duty land tax
The amount one pays the Stamp Duty Land Tax (SDLT) has doubled from £125,000 to £250,000. This applies to the basic rate of the tax. In addition, the threshold for first-time buyers has been raised from £300,000 to £425,000. The maximum value of a property on which first-time buyers’ relief can be claimed has also been increased from £500,000 to £625,000. These changes will be effective until March 31, 2025, and will only apply to England and Northern Ireland, as the taxation of properties varies in Scotland and Wales.
Calculate the stamp duty you’ll need to pay when you buy a property anywhere in the UK.
Cost of living payment
In the 2023-2024 fiscal year, the government plans to provide households that are receiving means-tested benefits with an extra £900 as a cost-of-living payment. Pensioner households will receive an additional £300, and individuals receiving disability benefits will get an additional £150.
Overall
These changes to the UK pension & tax system aim to make the system simpler, fairer, and more generous.
It’s always a good idea to seek professional advice and consult a financial adviser or a pension specialist to understand how the changes will impact you and your retirement plans if you are an expat overseas.
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