February 2023 Newsletter

End Of Tax Year Briefing

In the space of three weeks…

2022 was an unusual year in many ways.  We saw three Prime Ministers, four Chancellors, but no formal Budget. On Wednesday 15 March the first Budget since October 2021 will be presented to Parliament. Jeremy Hunt has already indicated that tax cuts are not on his spring agenda. Their absence is hardly surprising given that, in last November’s Autumn Statement, Mr Hunt delivered net tax increases amounting to £55 billion a year by 2027/28. In fact, after 2022’s pyrotechnics, the 2023 Budget looks set to be something of a damp squib, with the focus on fresh business investment incentives to replace the disappearing super-deduction.

Probably of more relevance to you and most other taxpayers will be what happens three weeks after the Budget on 5 April 2023, when the 2022/23 tax year comes to an end. At that point the personal tax landscape alters, with the revenue-raising measures in the Autumn Statement coming into effect at midnight. Those changes make tax year end planning this time around more important than it has been for some years. The sooner you start on this – and planning for the higher tax world of 2023/24 – the better.

The 2022/23 year end checklist

For 2022/23 the list of areas to consider has echoes of earlier years, but that does mean the actions to be taken – or not taken – are also similar:

  • Pensions

5 April 2023 is the final date for taking advantage of any unused pension annual allowance (of up to £40,000) dating back to 2019/20. As the calculations involved can be complex, the sooner you begin this element of planning, the better.

Beyond making use of any unused 2019/20 annual allowance before the opportunity is lost, this tax year’s pension contribution planning is more complex than usual because:

  • The higher rate income tax threshold will be frozen next tax year and the additional/top rate threshold will be cut from £150,000 to £125,140. In Scotland both the higher rate of tax and the top rate of tax will also rise by 1% to 42% and 47% respectively. Thus, in some instances, you could receive more tax relief by deferring all or part of your pension contribution until after 5 April. HMRC estimate that there will be about a quarter of a million more additional rate taxpayers in 2023/24.
  • The lifetime allowance (£1,073,100 unless you have any protection for a higher figure) has been frozen since 6 April 2020 and is not due to increase again until at least 6 April 2026. Even then, the increase is only scheduled to be the previous year’s inflation. If the value of your pension benefits exceeds your available lifetime allowance, you could end up suffering 55% tax on the excess. It is therefore wise to estimate the chance of breaching the lifetime allowance before you make any contribution.


  • ISAs

2023/24 will not only see income tax thresholds frozen or fall, but will also mark:

  • A halving of the dividend allowance to £1,000, to be followed by another halving to just £500 from 2024/25 onwards. Beyond the dividend allowance, tax on dividends is now 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).
  • The first of two dramatic cuts in the Capital Gains Tax (CGT) annual exemption, taking it down from the current £12,300 to £6,000 in 2023/24. It will then halve to £3,000 from 2024/25 onwards. Broadly speaking, CGT is charged at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers, with a further 8% added where residential property is involved.

These turns of the investment tax screw add to the attractiveness of ISAs. As a reminder, all ISAs offer four (increasingly) valuable tax benefits:

  • Interest earned on fixed interest securities and cash is free of UK income tax.
  • Dividends are also free of UK income tax.
  • Capital gains are free of UK CGT.
  • ISA income and gains do not have to be reported on your tax return.

Much higher interest rates, the quartering of the dividend allowance and the sharp cuts to the CGT annual exemption have made ISAs even more attractive. At the current base rate of 4%, a deposit of £25,000 is enough to reach the personal savings allowance. Similarly, based on today’s dividend yield on the UK stock market, a £15,000 shareholding will produce dividends greater than the £500 dividend allowance due to arrive from 6 April 2024. There is a case for investing in an ISA now even if it does not save you tax immediately as it may well do in the future if your savings grow.

The maximum total contribution to ISAs is £20,000 per tax year, a figure unchanged since 2017/18 and not due to increase in 2023/24. For Junior ISAs, the maximum is £9,000. There are no carry forward provisions: use it or lose it!

  • CGT

When he was Chancellor, Rishi Sunak commissioned a review of CGT from the now disbanded Office of Tax Simplification (OTS). It produced a range of proposals, the more radical of which Mr Sunak rejected. However, last November Mr Sunak’s next-but-two successor, revived the abandoned idea of sharply reducing the CGT annual exemption, as explained above.

One consequence is that it is more important than in past tax years that you review whether to use your annual exemption before 6 April, when it falls from £12,300 to £6,000. Although 2022 was a down year in most markets, you may well have gains accumulated from earlier years which can be offset against the annual exemption. Unfortunately, any unused annual exemption cannot be carried forward to a future tax year.

Anti-avoidance rules mean that you cannot sell holdings one day and buy them back the next to take advantage of the annual exemption. However, there are alternatives to achieve a similar outcome, such as reinvesting your sale proceeds via an ISA or a pension.

  • Inheritance tax

Inheritance tax (IHT) Is another tax which Mr Sunak flirted with changing after OTS reports, but eventually left virtually untouched. However, that may be because he chose to freeze the nil rate band and residence nil rate band until 5 April 2026, a period that was extended by another two years in Jeremy Hunt’s Autumn Statement. The main nil rate band was set at its current level in April 2009 and had it been index linked since then, in 2023/24 it would be about £465,000.

The prolonged freeze has dragged a growing number of estates into the IHT net and added to the tax bill of those already within it. IHT receipts in 2021/22 were more than double those of 2009/10. One way to reduce the tax’s impact on your children (and grandchildren) is to use the yearly exemptions which are available:

  1. The annual exemption. Each tax year you can give away £3,000 free of IHT. If you did not use all the annual exemption in 2021/22, you can carry forward the unused element to this year (and no further), but it can only be used after you have used the current tax year’s annual exemption. For example, if you made no gifts in 2021/22, and you gift £4,000 in 2022/23, you will be treated as having used your full 2022/23 exemption and £1,000 from the previous tax year.
  2. The small gifts exemption. You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 annual exemption.
  3. The normal expenditure exemption. The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions and one which the OTS wanted to replace. Under the exemption, any gift – regardless of size – escapes IHT provided that:


a) you make it regularly;

b) it is made from your income (including ISA income but excluding investment bond and other capital withdrawals); and

c) the sum gifted does not reduce your standard of living.

  • Venture Capital trusts and Enterprise Investment Schemes

The constraints imposed on pension contributions by the lifetime and annual allowance and the rising numbers of higher rate taxpayers have prompted a growing interest in venture capital trusts (VCTs) and enterprise investment schemes (EISs). In 2021/22, VCTs attracted over £1,100 million of fresh investment, 68% more than the previous tax year. Subject to generous limits, both VCTs and EISs offer:

  1. Income tax relief at 30% on fresh investment, regardless of your personal tax rate; and
  2. freedom from CGT on any profits.

While VCTs and EISs offer attractive tax reliefs, they should not be regarded as an alternative to pensions for retirement planning. Over the years, the tax framework for VCTs and EISs has been honed to ensure the schemes focus on investments in small, relatively young, high risk companies. That is not an area you would normally be advised to choose for your pension arrangements.

  • Business income planning

If you are a shareholder director in your company, it may be worth bringing forward the payment of any dividend or bonus into this tax year, rather than leaving it until after 5 April. However, the decision is not clear cut because of all the tax changes that have and will take place.

In favour of early payment:

  • The reduction in the dividend allowance.
  • The frozen higher rate threshold.
  • The reduced additional/top rate threshold.
  • The one percentage point increase to higher and top rates in Scotland.

In favour of deferral:

  • Increased corporation tax rates for companies with gross profits of over £50,000, including a new marginal rate of 26.5% on profits between £50,000 and £250,000.
  • For directors, the effective corporate and personal National Insurance contribution (NIC) rates fall in 2023/24.

To see the effect, consider an English resident higher rate taxpaying director whose company profits are £100,000 in both the year ending 31 March 2023 and the following year. If their personal investments generate £1,000 dividend income and they wish to draw out £10,000 of gross profits, the picture looks like this:

Bonus £ Company dividend £
2022/23         2023/24         2022/23         2023/24        
Gross profit 10,000 10,000 10,000 10,000
Corporation tax (1,900) (2,650)
Employer NIC (1,269) (1,213)
Gross pay / dividend 8,731 8,787 8,100 7,350
Income tax (3,492) (3,515) (2,396) (2,481)
Employee NIC      (   238)      (   176)    
Net income 5,001 5,096 5,704 4,869



Mr Hunt gave what amounted to his Budget in the guise of the Autumn Statement, so there should be a clear run up to Wednesday 5 April. Nevertheless, the standard advice applies: do not delay your tax year end planning. An early start gives more time to obtain data (often vital for pension contributions) and carry out the necessary calculations.

 Just how much does retirement cost?

In April the New State Pension will rise to £203.85 a week, a 10.1% increase on the current level, thanks to the infamous ‘triple lock’. At the same time, the National Living Wage will rise to £10.42 an hour, equivalent to £364.70 a week. As both could be regarded as Government determined minimum incomes, the gap between the two begs questions about why retirement appears to be so much less expensive.

How much retirement income is needed to maintain your standard of living?

Since 2019, every year, the Pensions and Lifetime Savings Association (PLSA) has published estimates of the net income needed to answer that question. In conjunction with Loughborough University, the PLSA produces a table of target retirement incomes for three distinct living standards:

  • Minimum, a level of income which covered all needs, with ‘some left over for fun’;
  • Moderate, a higher level of income, providing more financial security and flexibility; and
  • Comfortable, the top level of income, giving more financial freedom and ‘some luxuries’.

There are six common categories underlying each standard – house, food, transport, holidays & leisure, clothing & personal and helping others. For example, under the holidays & leisure heading, the minimum standard for a couple is one week and a long weekend in the UK each year, while the comfortable standard envisages three weeks in Europe every year. The standards are reviewed annually as living patterns change. For instance, in the latest update, published in January 2023, supermarket delivery charges have been included for the first time.

The latest results

The latest tables are based on prices in April 2022, so are already behind the inflationary curve (the CPI rose by 5.3% from April 2022 to January 2023). Even so, they show a marked increase over April 2021.

At the minimum levels, the year-on-year increase for a couple living outside London is almost 20%. Part of that is due to their proportionately heavier expenditure on energy and food, both sectors that have seen above average inflation.

However, even the least affected, the comfortable couple, saw their costs rise faster than the 9% CPI inflation over the year to April.

The PLSA’s net annual income targets for 2022 and 2021 for those living outside London are shown in the graph below. Full London costs are still awaited, but the PLSA has already said for a moderate living standard couple the 2022 figure is £41,400 (up 14.4%).


Source: PLSA

Even though the New State Pension will hit five figures at £10,600 a year from April, it is still not enough to meet the minimum standard of living for a couple unless both have close to their full State Pension entitlements. At the comfortable end of the retirement spectrum, two State Pensions do not even reach 40% of the target income – and that is before you start considering tax.


If your goal is anything other than a minimum standard of living in retirement the State Pension is going to be something on which to build your retirement planning, not the key element.

Talk to us about how you can build the retirement fund you need to supplement the State Pension.

 One to watch in the Budget: State Pension Age rising to 68

Legislation dating back to 2011 requires the Government to publish a review of the State Pension Age (SPA) periodically, with the next due by 7 May 2023. At the end of 2021 the Department for Work and Pensions (DWP) initiated the latest review process, commissioning an independent report and a separate paper from the Government Actuary. All has gone quiet since, although the first report was completed in September.

The SPA is already set to rise to 67 between April 2026 and April 2028. Following the 2017 review, the next step up to 68 was proposed to happen between 2037 and 2039, although the currently legislated timing is between 2044 to 2046. There have been several rumours that the 2037-2039 schedule will be confirmed in the Budget, the reason being the significant financial impact of moving SPA. Such an announcement would be controversial because the most recent life expectancy projections suggest that, if anything, SPA changes – including the rise to 67 – should be pushed further out.


At the end of 2022, the total debt of the UK Government crossed an eye-catching round-number threshold. The Government accumulated borrowings exceeded £2.5 trillion (£2.5 million million) for the first time. Another way to look at the debt figure is that it was just 0.5% smaller than the UK’s Gross Domestic Product (GDP) – the nation’s entire annual economic output.

It has since slipped below the £2.5 trillion mark it crossed in December’s initial figures, ending January at £2,492.1 billion, equivalent to 98.9% of GDP. And, the December figure has been revised down so that it is now under the £2.5 trillion threshold and the same 98.9% of GDP. Nevertheless, a year ago, debt was 97.7% of GDP and £143.4 billion less in cash terms.

Does it really matter?

In the best of economic traditions, the answer is both yes and no:

 Yes because a large pile of debt means a correspondingly large interest bill. The Office for Budget Responsibility (OBR) estimates the 2022/23 interest bill will be about £120 billion, which is just under half the revenue produced by the largest single tax, income tax. Viewed another way, debt interest also equals nearly half of total welfare spending. If there were less debt, there would be less interest to pay and more for the Government to spend elsewhere.

 No because the UK has seen higher levels of debt relative to the size of its economy in the past and survived. In the 30 years from the early 1960s debt was reduced from around 100% of GDP to 22%. A combination of inflation, higher taxes, financial repression (maintaining interest rates below inflation) and economic growth all helped to lower the debt/GDP ratio. The UK has three out of four working in its favour at present.

 Source: National Statistics

How does it affect me?

The higher interest bill and the need to bring down debt severely restricts the scope for cutting taxes, as Liz Truss and Kwasi Kwarteng so clearly demonstrated last autumn. Large debt can also keep interest rates (and hence mortgage rates) higher than they otherwise would have been – the more a country needs to borrow, the more its lenders will charge.

Given that debt reduction will take decades, the Government is going to be a big borrower for many years – not only in terms of new debt (£140 billion new borrowing is forecast for 2023/24), but also in refinancing the old debt as it matures. One side effect noticeable in the past few months has been that National Savings & Investments offerings have become more competitive. For example, for the first time in a long while, £25 wins do not represent more than half of all premium bond prizes.


The UK’s large Government debt will preclude meaningful tax cuts, whatever the politicians might say in 2024.

The flip side of higher borrowing rates is better returns on fixed interest investments – the days of Government bonds paying under 1% have gone.

 Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding current law and HM Revenue & Customs practice as at 22 February 2023. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.