Iain Stevenson discusses recent economic policy changes and their impact on personal finance.
There have been finance changes aplenty so far in 2023. Not least of these are thanks to some headline-grabbing announcements from the spring Budget, delivered by Chancellor Jeremy Hunt.
Many of these are in the early stages of implementation. It’s crucial to mull these changes over and understand how they might impact you and your life in the short, medium and long term, and make changes where necessary.
Budget changes affecting personal finance
Firstly, the income tax allowance freeze, while not particularly surprising, will be a challenge for all. This freezing effect is called ‘fiscal drag’, which means that income grows, but tax rates remain the same. Many of us will pay more tax, as more people will be drawn into higher rates of income tax.
In welcome news, 30 hours of free childcare for every child over the age of nine months will provide support for parents whose childcare costs prevent them from returning to work. This is good news for dentists and dental staff who want to return.
It will potentially ease some of the retention crisis that we’re currently seeing in dentistry. The support will be phased in until every eligible working parent of under-five-year-olds can access it by September 2025.
Another notable announcement included the confirmation of the previously agreed increase in corporation tax from 19% to 25% for businesses with profits over £250,000. But, on a more positive note, there was the good news that investment into businesses and practice assets would be encouraged through the capital allowance scheme.
Pension allowance
Then came the real showstopper: pension allowance changes. With annual allowance increasing by a massive 50% from £40,000 to £60,000 and the abolition of the lifetime allowance, it may seem like a brilliant opportunity to invest heavily into pensions. In some cases, this is correct, but be careful to seek advice.
As ever, the devil is in the detail, and you must ensure you fully understand the implications.
For example, there remains a cap on the pension commencement lump sum, commonly referred to as tax-free cash that you can take out. This means if you are already over or projected to be over the lifetime allowance, be mindful that the amount you take out tax-free will continue to be restricted.
That aside, there is real scope for people to re-consider their retirement plans and where they are investing their cash. No doubt about it, pensions are a top consideration for those on high earnings. Some real opportunities have opened up to think about the potential tax benefits of saving into pensions.
As with everything, boosting pension savings might not be the right choice for everyone’s personal finance, but if you ever needed a prompt to look again at what you are saving, where you are saving, and indeed, when you might want to retire, now is the time.
Don’t miss this opportunity – speak to a specialist who really understands you and your profession.
Please note: tax treatment depends on individual circumstances and may be subject to change in future. The value of investments can go down as well as up and you may get back less than you invest.
Read more Money Talks columns
- Estate planning
- Setting effective financial goals
- One financial New Year’s resolution to address
- To be private or not to be private?
- Analysing business risks for your practice.
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