UK 2023 Spring Budget Update

Jeremy Hunt delivered his Spring Budget on 15 March 2023 and there were some welcome tax changes for businesses and individuals alike.

We have summarised below the main business tax, personal tax and share plans takeaways.

Business Tax

• Corporation Tax – the Chancellor confirmed that the headline rate is still rising from 19% to 25% from 1 April 2023, albeit it is estimated only 10% of companies will pay this rate.
• Deductions reformed – the measures should be well received by companies faced with the end of the current “super-deduction” for capital allowances and the increased corporation tax rate:
  • ‘full expensing’ (100% capital allowances) available (for what would have been ‘main rate pool’ qualifying plant and machinery). This will last at least until 31 March 2026, but is likely to become permanent.
  • 50% first-year allowances for ‘special rate’ plant and machinery, including long-life assets
  • the 100% first-year allowance for expenditure on electric vehicle charge point equipment will be extended for at least two years.
• Research and development (R&D) – it wouldn’t be a budget without some change to R&D reliefs, thankfully the changes should be welcome to those operating in highly R&D intensive industries, including life sciences businesses:
  • a higher rate of tax relief for loss-making R&D for SMEs where their R&D spend is at least 40% of their total expenditure. These companies will receive 27p for every £1 R&D spend.
  • a previously announced restriction on certain overseas R&D spend will now not take effect until 1 April 2024; the government wants to consider this further as part of its wider consideration of the reform and possible merger of the research and development expenditure credit (RDEC) and SME schemes (for which it expects to publish legislation later this year).
• Seed Enterprise Investment Scheme (SEIS) – the SEIS scheme will be extended from 6 April 2023, with the company investment limit increasing from £150,000 to £250,000, the limit at the date of share issue on a company’s “gross assets” increasing from £200,000 to £350,000, and the age limit of a company’s “new qualifying trade” from two to three years. The annual limits applying to the investment amount on which individuals can claim income tax and capital gains tax reliefs will also increase from £100,000 to £200,000.
• Funds – an elective accruals basis for carried interest. UK resident investment managers could elect to accelerate their tax liabilities in order to achieve matching tax periods with other countries in which they are taxed, allowing them to access double taxation relief.
• Investment zones – 12 investment zones will be established across the UK (eight in England and four across Scotland, Northern Ireland and Wales).  Each English investment zone will have access to £80m over five years, including a time limited enhanced capital allowances and structures and buildings allowances, reliefs from stamp duty land tax, business rates and employer national insurance contributions, and grant funding.  The UK government will work with the devolved authorities in Scotland, Wales and Northern Ireland and it will be interesting to see if similar reliefs are available in all three jurisdictions.
• Charity reliefs – in a post-Brexit measure, from 15 March 2023 charitable tax relief will cease to be available to EU and EEA charities and community amateur sports clubs. For those HMRC previously accepted as qualifying for relief, there will be a transitional period until April 2024.
• Inheritance Tax Reliefs – in a similar post-Brexit measure, from April 2024, agricultural property relief and woodlands relief will be restricted to land in the UK, with land in the EEA, Isle of Man and the Channel Islands no longer being eligible.

Pensions, Trusts and Estates and Capital Gains Tax

• Pensions – in a bid to encourage people to work longer, the government will increase from 6 April 2023 the amount a person can contribute to their pension before they are taxed:
  • The pension lifetime allowance – the maximum amount of pension savings a person can build without paying tax – will now be completely abolished.
  • Under current rules, a person can save up to £1,073,100 into their pension tax free and any savings above the limit are taxed at 55% – from 6 April 2023, that tax charge will be abolished.
• The annual pension allowance – the maximum amount of money an individual can pay into their pension fund in a tax year without penalty – is also increasing from £40,000 to £60,000.
• The money purchase annual allowance – the amount of tax-free money you can save into your pension after you have started drawing it down – will increase from £4,000 to £10,000 per year.
• Trusts and estates – an existing concession has been legislated and extended giving those dealing with deceased persons’ estates in administration, and beneficiaries of estates, certainty and simpler tax administration:
  • trusts and estates with income up to £500 per year will not pay tax on that income as it arises;
  • the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income is removed;
  • beneficiaries of UK estates will not pay tax on income distributed to them that was within the £500 limit for the personal representatives.
• Capital gains tax – in order to make the process of dividing assets between spouses or civil partners who are in the process of separating or divorcing fairer:
  • spouses and civil partners now have up to three years, after the year they cease to live together, to make no gain or no loss transfers of assets to each other and an unlimited time to do so where the assets are the subject of a formal divorce agreement; and
  • a spouse or civil partner who retains an interest in the former matrimonial home will be given an option to claim private residence relief (PRR) when it is sold.  Those who have transferred their interest in the former matrimonial home to their ex-spouse or civil partner and are entitled to receive a percentage of the proceeds when that home is eventually sold will be able to apply the same tax treatment to those proceeds when received that applied when they transferred their original interest in the home to their ex-spouse or civil partner.

Share Plans

• Enterprise Management Incentives (EMI)– good news for companies operating EMI schemes was the announcement of a simplification of the administration requirements:
  • Two previous requirements will be lifted from 6 April 2023 for all unexercised EMI options and for future EMI grants:
    • there is no longer a need for a company to detail any share restrictions in the EMI option agreement;
    • a company no longer needs to declare that the employee has signed a working time declaration and provide the worker with a copy.  There is no removal of the working time requirement itself.
  • The current requirement to notify HMRC of the grant of an EMI option within 92 days has been extended to 6 July following the year in which the EMI option is granted.  This aligns with the time end-of-year reporting forms need to be filed. This is another welcome change but disappointing that it will take effect for options granted from 6 April 2024 and not 6 April 2023 aligning with the other EMI simplification measures.
• Share Incentive Plan (SIP) and Save As You Earn (SAYE) – a call for evidence is to be launched on SIP and SAYE schemes in advance of future improvements and simplifications to these.
• Company Share Option Plan (CSOP) – a useful reminder that from 6 April 2023, the types of shares that can be granted under a CSOP will no longer be restricted and the limit on the maximum market value of unexercised CSOP awards that an employee can hold will double from £30,000 to £60,000.

By Burness Paull LLP, Scotland, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact ukscotland@transatlanticlaw.com

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