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Budget 2023: Pension Tax Changes
As part of his Budget on 15th March, Chancellor Jeremy Hunt announced the following significant changes to the amounts individuals may save into their pensions.
By Andy Gibbs, ATT, CTAAnnual Allowance
The Annual Allowance is the maximum amount of pensions savings an individual can make each year without incurring a tax charge.
- From April 2023 the Annual Allowance will increase from £40,000 to £60,000
Tapered Annual Allowance
Although most individuals are entitled to a full annual allowance, the allowance is restricted for individuals with income above certain levels.
- From April 2023 the income level for the tapered AA to apply will increase from £240,000 to £260,000. The minimum Tapered Annual Allowance also increases from £4,000 to £10,000.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance (MPAA) can potentially apply where an individual starts to take money from a defined contribution pension pot. Where the MPAA applies, the amount that can be contributed into your pension might reduce.
- From April 2023 the MPAA increases from £4,000 to £10,000
Lifetime Allowance
The Lifetime Allowance (LTA) is the maximum amount of tax relievable pension savings an individual can benefit from over the course of their lifetime. Individuals may contribute to their pension over these limits, but they will be subject to a tax charge on the amount above the allowance.
- In a hugely significant announcement, the Chancellor announced the abolition of the LTA from April 2023.
However, further detail about this measure and the Government's plan to put in place restrictions on the tax-free lump sum an individual may take, have yet to be released. Currently, when an individual becomes entitled to their pension benefits, they can often make use of the pension commencement lump sum (PCLS), which is currently 25% of an individual's available LTA. The Government will introduce a PCLS upper monetary cap of £268,275 (25 % of the current LTA). If you have LTA protection in place, you may be able to take a higher PCLS.
Find out more about the Spring Budget
To find out what other tax changes The Chancellor announced in the Spring Budget, please click here.
Date published 15 Mar 2023 | Last updated 16 Mar 2023
Andy Gibbs, ATT, CTA
Andy is Director of Services and is a qualified Chartered Tax Adviser (CTA) and holds the STEP Advanced Certificate in Trust and Estate Accounting. Andy has dealt with both tax compliance and tax advisory projects across a range of industry sectors.
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