Opinion Piece – Spring Budget and Banking Crises

Piece has been authored by Edward Downpatrick, Head of Strategy, Fintuity – Please note that all views expressed are representative of the author

The headlines make for continuously amusing and/or bleak reading depending on how one chooses to interpret them.

With both labour and the conservatives seemingly point scoring and with the former PM stating in no uncertain terms that the rules that bind us all, do not it seems apply to him, it reminds me of the time when the enduringly-outrageous animated comedy Family Guy does an aside skit of a slaptickishly-wide-jawed, stuttering Hugh Grant whose only words after what seems like an eternity of stutters are “I’m so charmingly befuddled”. This seems, more or less, to sum up the former PM’s defence.

Credit Suisse ‘saved’ by arch-rival. Imagine building a business for the best part of 170 years only to see its value written down to relative zilch and your fiercest adversary quaff the good stuff as it picks you up for centimes on the franc. On the list of core competencies for banking governance, you’d be forgiven for thinking that interest-rate management might just score highly. A little too used to free-money certain financial institutions have apparently become.

The Silicon Valley Bank – repeat readers, and I use that term advisedly, might have already noticed a certain misanthropy towards tech, venture capitalists, hot air, and a brand of what one might call Californian self-righteousness. If the primary source of a bank’s deposits hail from businesses whose underlying interests are so many times overvalued that the money might as well not exist and the Jenga tower will somewhat unsurprisingly collapse. Some have speculated that SVB focused too greatly on optics, namely its brand image and new-age corporate box-ticking, and whilst that might be the case, they still had enough time to run a bank with judicious oversight and investment management decisions. This might ring bells of 15 years past, but for now, the contagion is contained and new and improved security measures will come into place. We could well understand the appeal of a platform that spreads clients’ deposits across multiples banks, benefiting from the state-backed protections of the Financial Services Compensation Scheme (FCSC) which operates on per-bank/building-society basis. Speak to one our advisers to see how to put such a scheme in motion.

Spring Budget Summary

The Chancellor set out a variety of measures aimed at tempting people back into work to boost the nation’s economy as well as some significant reforms to childcare, energy, and fuel duty. Changes to pension limits were especially eye-catching. Their steely purpose is to get over-50s back into work in an effort to revive the increasingly cadaverous economy. The changes will allow all investors greater scope to rebuild pension pots following significant rises in the cost of living and a dip in markets over 2022.

The Chancellor started his speech by saying that the UK won’t enter a technical recession this year – it remains to be seen whether a practical recession will follow as the geo-economic headwinds continue to batter British business. However, he stated that inflation is forecast to fall to 2.9% by the end of 2023 – whilst there is evidence that goods & services inflation is falling, wage inflation remains a significant concern and could put severe pressure on this 2.9% forecast.

Other than the pension changes outlined below, there were no other personal tax changes announced and so the following is a brief reminder summary of the direct personal tax matters that were announced in Nov 2022 that are most relevant to the readers of this piece. Unusually for me, the following is pretty terse.

Income Tax

• The main Rates and Allowances (other than below) have been frozen until April 2028 – with inflation pushing up earnings this will drag more taxpayers into a higher tax environment.
• 45% tax rate (or 38.1% if dividend income – see below regarding NIC) – this will start at £125,140 (rather than £150k at present).
• Dividend Allowance – all taxpayers are entitled to this, but for 2023/24 it will reduce to £1,000 (from £2,000) and to £500 from 2024/25.
• Savings Allowance – this remains unchanged, but has limited impact amongst this distribution group, since anyone paying tax at 45% doesn’t qualify for the Allowance (basic rate taxpayers get £1,000 and higher rate taxpayers £500).

NIC

• Employees – for 2023/24 tax year, the headline rates are 12% (income up to c£50k) and 2% (over c£50k).
• Self-employed – the equivalent headline rates are 9% and 2%
• Dividend income – this also attracts the 1.25% surcharge.

CGT

• Annual Exemption – the current rate of £12,300 will reduce to £6,000 in 2023/24 and £3,000 in 2024/25.
• However, the CGT rates have not increased – on residential property the rate is 18/28% and on all other assets 10/20%.
• Entrepreneurs Relief – this remains in place and means the initial £1m of any qualifying lifetime gains will be taxed at 10%.

IHT

• The Nil-Rate Band of £325k is frozen until April 2028 and will be another example of fiscal drag (assuming capital values increase).

Pensions

• Annual Allowance – this increases from £40k to £60k for taxpayers with total adjusted income less than £260k.
• Tapered Annual Allowance – this will increase from a minimum of £4k to £10k. Let’s say you have total adjusted income of more than about £315k, you will be capped at £10k gross.
• Lifetime Allowance – this has been abolished altogether (a surprise move). We’re therefore back to pre-2006 days when the Allowance was first brought in – since then it has fluctuated anywhere between £1m and £1.8m, with various grandfathering provisions available each time the limit has changed.

Whilst this will hugely benefit taxpayers that already have large pension pots built up and were in danger of exceeding the Lifetime Allowance, for those high earners in their 30’s, 40’s, and 50’s it probably remains a pipe dream given that they can only contribute £10k per annum and so unless their funds generate very substantial growth they were never in much danger of having a problem anyway.

SDLT

• The changes announced in September 2022 will remain in place until April 2025.

Sole traders & partners/LLP members

• Whilst not part of the Budget, to remind those clients who are self-employed the basis on which their profits are being taxed is changing from April 2023.
• Unless you are subject to special rules in the initial years of joining or leaving, the normal basis of being taxed on the accounts basis is being moved to a tax year basis.

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Please Note: All information, references and dates included in this article were accurate at the time of publishing.