Mark Savage, Tax Director, provides his commentary on today’s UK Spring Budget from Jeremy Hunt, Chancellor of the Exchequer.
Mark notes that “The UK Chancellor has announced that the UK is no longer predicted to enter a recession in 2023 and delivered a Budget which promised to promote growth, bring inflation under control, and reduce the cost of borrowing.
A major focus of the Budget was on expenditure, rather than major taxation reforms, and on looking at ways to incentivise the “economically inactive” to remain in, or rejoin, the UK’s workforce. However, some of the following measures may be of interest to Guernsey residents with connections to the UK”.
As part of the measures to incentivise people to continue to work, and to save for their retirement, the complicated but potentially penal tax charges that applied to people with large amounts of UK pensions savings have been effectively abolished from 6 April. It is hoped that this will act as an incentive for those close to the old threshold of savings to continue working rather than take early retirement, but this may also benefit former UK residents with significant amounts of UK pensions savings.
In particular, it may help affected individuals who were reluctant to transfer funds to a Guernsey based pension scheme (known as a QROPS) which is often effectively restricted at present because of the associated tax charge where funds exceeded the lifetime allowance.
In addition the Chancellor announced an increase in the amount of tax relieved contributions that may be made in a year to a maximum of £60,000 from £40,000. This compares favourably with Guernsey’s maximum of £35,000.
There have been no changes to previously announced rates but UK taxpayers should remember that, from 6 April, the 45% higher rate will now apply to income over £124,140 rather than the previous £150,000.
Individuals who hold UK assets or otherwise remain subject to UK Inheritance Tax will note that the current tax-free threshold also remains frozen at £325,000. The effect of inflation means that these frozen allowances may lead to an increased number of Guernsey residents facing UK tax liabilities.
Changes which may be of interest to Guernsey individuals with interests in UK companies include the introduction of full expensing regarding capital allowances for the next three years. Companies incurring qualifying expenditure on the provision of new plant and machinery on or after 1 April 2023 but before 1 April 2026 will be able to claim an allowance at a rate of either 100% (main rate expenditure) or 50% (special rate expenditure).
However, the planned rise in the main rate of corporation tax from 19% to 25% will go ahead from 1 April.
Simplifications to how income tax applies to low income trusts, estates and their beneficiaries will take effect from 6 April 2024.
Those with an interest in any non-UK tax paying offshore trust will also be pleased to note that HMRC also intend to make changes to inheritance tax regulations during 2023 to 2024 to remove some non-taxpaying trusts from reporting requirements.