Earlier this month Jeremy Hunt announced a number of changes in his first spring Budget as chancellor that will have knock-on effects for individuals and businesses alike.
One of the boldest announcements was the abolition of the lifetime tax-free pension allowance, and the increase to the annual cap on tax-free contributions.
These are long and overdue reforms to make the UK pension system more attractive and simpler.
Higher-paid workers who might have felt forced into early retirement or reducing hours to avoid higher tax rates are now incentivised to continue working and contributing to the UK’s economy.
While Labour have suggested that they would reverse this generous change, previous restrictions have allowed taxpayers to protect their pension savings at the higher limits, at the cost of not being able to make further contributions, so there is a window of opportunity for those able to maximise their contributions.
In the small print, we can also see that the chancellor has updated the taper mechanism for the annual allowance.
This taper was previously at £4,000 and restricted the amount that high-earning individuals could save into their pension without losing the tax relief on the contributions. This has now reverted to its 2020 level of £10,000.
Also in the finer detail is a restriction on the tax-free lump sum that can be taken. The 25 per cent limit has been supplemented by a cap of £268,275.
This limitation sets a new precedent for pension policy and a new opportunity for fiscal drag to boost the government coffers in real terms if it isn’t increased by inflation each year.
Subtle changes to inheritance tax
Less obvious was the chancellor’s subtle changes to IHT with regards to agricultural property relief.
It's aimed at a niche market, which explains why it has gone slightly under the radar for most, but it’s an important one for property advisers to be aware of.
The government is organising a consultation to explore the taxation of ecosystem service markets, and the potential expansion of agricultural property relief from IHT to cover certain types of environmental land management.
HMRC will also restrict the geographical scope of agricultural property relief and woodlands relief from IHT to property in the UK from April 6 2024.
Expect more detail to follow, but this could provide some comfort to clients who fear that the increasing focus on environmental projects – as opposed to traditional farming – might restrict the availability of IHT allowances.
Many had hoped that the chancellor would delay the increase to corporation tax scheduled for April 1, or at least adjust the thresholds at which companies start to pay the higher rate.
By not doing so, he has missed a huge opportunity to ease the pain for all businesses across the country – not just those in the new investment zones.
Instead, he has added an extra burden to British businesses at a time when they need all the help they can get.