The tax charge of up to 55% on pension savings exceeding the lifetime allowance (‘LTA’) £1,073,100 ceases to apply from 6 April 2023. The LTA will be abolished from 6 April 2024.
However, the maximum tax-free lump sum is restricted to 25% of £1,073,100 (£268,275), unless the taxpayer has elected for special pension protections.
The Annual Allowance for pension contributions (‘AA’) for 2023/24 is increased by 50% to £60,000. However, there is a restriction on the AA payable for those with adjusted income exceeding £260,000. The AA relief can be restricted to £10,000 from £4,000 previously.
From 2023/24, the maximum that can be invested into a money purchase pension scheme where pension benefits have been claimed flexibly, increases from £4,000 to £10,000.
A new capital allowance policy was announced to continue to boost investment and act as compensation for both the forthcoming increase in the main rate of corporation tax from 19% to 25% on 1 April 2023 and the end of the super-deduction on 31 March 2023 which allowed a 130% first-year allowance for the main pool and a 50% first-year allowance for special rate pool assets (which includes expenditure on integral features and long-life assets).
From 1 April 2023 to 31 March 2026, companies investing in qualifying new plant and machinery assets will be able to claim:
- a full 100% first-year allowance on qualifying new plant and machinery; and
- a 50% first-year allowance for qualifying new special rate assets.
This new incentive will allow companies to still cut their corporation tax bill by the equivalent of 25p in the pound, the same amount as the super-deduction given the increase in the tax rate. It is intended that the new measures will be made permanent if economic circumstances allow.
While this new incentive is only available to incorporated companies, all businesses can still utilise the £1m Annual investment allowance (‘AIA’). Notably, the AIA will still be available for second-hand assets, special rate assets and assets for use in a leasing trade.
Carried interest – elective accruals basis
The government is introducing a welcome improvement to the rules for individuals in receipt of carried interest. This will be particularly beneficial for American citizens in the UK, who frequently suffer a mismatch in the timing of UK and US tax charges on carried interest, and hence are often subject to double taxation.
There was previously a view that double tax could be avoided by claiming credits on the UK tax return. HMRC had previously indicated this should be acceptable, in circumstances where it is not possible to claim a credit on the US return. However, HMRC published updated guidance in January 2022 indicating that they had changed their view.
The new legislation is therefore much needed. It will allow individuals to elect to accelerate the timing of the UK tax charge on carry, to bring it in line with the US charge. This alignment should, in many cases, facilitate the claiming of a credit on the US tax return, hence mitigating the double taxation.
The election, which is voluntary and irrevocable, will apply from 6 April 2022, and it remains to be seen whether there will be any specific provision dealing with the period between the update in HMRC’s guidance, and the effective date of the new legislation.
In some respects, this is a win-win for both the government and taxpayer, since the government gets its tax early and the taxpayer stands a greater chance of avoiding double tax.
Research and Development
From 1 April 2023 ‘R&D intensive’ companies making claims under the SME regime will be able to access cash credit at an enhanced rate for the surrender of tax losses. Those qualifying companies whose R&D expenditure comprises at least 40% of total expenditure may surrender their losses for a cash credit of c. 15%, an enhancement on the 10% rate applicable from 1 April 2023 for other SME claimants.
R&D relief on expenditure by all UK companies on R&D activities taking place outside the UK was due to be removed for claims for accounting period on or after 1 April 2023 unless that activity cannot take place within the UK. The introduction of this restriction has been delayed by 12 months which is good news for all R&D claimants and allows more time to restructure their activities.
Twelve new ‘Investment Zones’ are to be created – these will all be outside London (mainly in the North of England and with one in each of Wales, Scotland and Northern Ireland) to show that the Conservatives are committed to their “levelling up” agenda, to make the rest of the UK as equal as possible with regards to investment, jobs and future economic growth.
Each zone will get £80m of investment over a 5-year period, including generous tax incentives to attract business into that area, thus producing jobs and future prosperity. Detail on the nature and extent of the incentives will be announced in due course.
It is expected that the zones will be centred around learning institutions, probably elite universities and the hope is that the zones will become research hubs for technology, the creative industries and the green economy.
These are already thriving industries in the UK and the Chancellor is hoping that these zones will make the UK even more pioneering for the future.
Property Income Distributions from Real Investment Trusts will be simplified so that distributions made to investors in ‘mixed partnerships’ may receive these gross of withholding tax where they are entitled to do so. The change will take effect for distributions made from Royal Assent of the forthcoming Finance Act.
From 6 April 2023 for individuals (1 April 2023 for companies) the 4-year time limit to either assess or claim losses applying to unconditional contracts will commence from the end of the tax year in which the contract becomes unconditional, not the year the contract was entered into.
From 15 March 2023 the tax definition of what is an allowable charity for charitable tax relief purposes will be amended to only cover those entities that come within the jurisdiction of the High Courts in England, Wales and Northern Ireland and the equivalent court in Scotland. There is a transitional relief until April 2024 where an EU or EEA charity has previously been approved by HMRC.