Spring statement 2022: budget changes that will affect your finances and the tax you pay

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MoneyPlus Features Team

March 23, 2022

5 mins read

Here's what you need to know about the Chancellor's spring statement. What it means for the tax and National Insurance you pay and how it affects your savings and pension allowances.

The Chancellor set out plans to raise the threshold on National Insurance contributions, reduce the basic rate of income tax in 2024 and cut fuel duty in his spring statement. It came against a backdrop of rising inflation and lower growth predictions for the UK economy. 

Key changes from the spring statement

  • Chancellor Rishi Sunak increased the threshold for National Insurance (NI) contributions by £3,000 from July. This means you won’t pay income tax or NI until you’re earning £12,570 
    • Basic rate income tax planned to drop from 20% to 19% in April 2024
  • Fuel duty was cut by 5 pence per litre, among other measures aimed at easing the pressure on household budgets

The changes were announced after official figures released in advance of the spring statement showed that inflation continued to rise. Prices rose by 6.2% in the 12 months to February, up from 5.5% in January.

The latest Office for Budget Responsibility (OBR) report revealed that growth predictions for the UK economy were cut to 3.8% for 2022.

What do the changes in National Insurance mean?

You pay National Insurance contributions to qualify for certain benefits and the State Pension. From April, the rates of NI contributions were already due to increase by 1.25%. This was introduced as a means to increase spending on health and social care and will be replaced in April 2023 by a new Health and Social Care Levy.

The change to thresholds announced in the spring statement increases the threshold for paying NI by £3,000 to £12,570, which is in line with the current tax-free personal allowance.

How are income tax rates and your tax-free personal allowance affected? 

The Chancellor announced that the basic rate of income tax will reduce from 20% to 19% in April 2024. As Scotland and Wales have the right to set their own rates of income tax, the rate of tax you pay may depend on where you live in the UK. This could have some impact on any tax relief you get on pension contributions. 

But for the 2022-23 tax year the basic rate income tax rate will remain at 20% on earnings between £12,570 and £50,270. This means that most people will start to pay higher rate tax when they have income of £50,270 or more. 

You can see the tax rates and thresholds for 2022 to 2023 on the Government’s website

In Scotland, where bands and rates are different, the Scottish Budget in December announced that the starter and basic rate bands are due to increase with inflation while higher and top rates will remain at the current level.

There were no new changes announced for the standard UK-wide tax-free personal allowance, which remains at £12,570 for the 2022-23 tax year starting on 6 April. In the Budget of March last year the Chancellor announced that it will be frozen at this level until 2026. You’ll only pay tax on anything you earn above this personal allowance threshold.

If you have income of over £100,000 this allowance may be reduced or lost completely.

How do the announcements affect my personal or workplace pension?

There were no major changes announced when it comes to pensions, so savers can plan for the new tax year with confidence about your pension benefits and allowances.

What is the pension annual allowance for 2022-23?

Your pension annual allowance remains the same for 2022-23. This is the total amount that you, your employer and any third party can pay into your pension plans in a tax year. The limit remains at £40,000 or 100% of your earnings in a tax year, whichever is lower, although it could be less if you’re a higher or non-earner, or if you’ve already started taking money from your pension savings. You can find out more about the pension annual allowance in our guide.

Lifetime allowance frozen until 2026

Lifetime allowance will remain at its current level of £1,073,100 until April 2026. This is the total amount of pension benefits that you can build up during your lifetime across all pension schemes before an additional tax charge applies. You can read more in our pension lifetime allowance guide.

State Pension is due to rise

The State Pension will rise by 3.1% from April 2022, as confirmed in the Autumn 2021 Budget. This will affect you whether you’re eligible for the new flat-rate State Pension, which was introduced in April 2016, or the older basic State Pension.

From April 2022 those qualifying for a full new State Pension will receive £185.15 a week (up from £179.60). And those who reached State Pension age before April 2016, who are on the older basic State Pension, will now receive £141.85 – up from £137.60. You can check your own State Pension forecast on the Government’s website. For more about the State Pension read our article Changes to State Pension - here is what you need to know.

How much are ISA allowances for 2022-23?

The ISA (Individual Savings Account) allowance in 2022-23 will be £20,000. That means you can save up to £20,000 in a Cash or Stocks & Shares ISA, or a combination of both. The Junior ISA (JISA) allowance stays at the current level too, which is £9,000.

For more on the tax and pension changes being introduced in April for the new tax year including capital gains tax and inheritance tax, read What changed in tax and pensions this year and what to expect in 2022.

Pensions and Stocks & Shares ISAs are investments. They can go down as well as up in value and may be worth less than what was paid in.

Tax rules and legislation may change and your individual circumstances and where you live in the UK will have an impact on the tax you pay.

The information here is based on our understanding in March 2022 and should not be taken as financial advice. If you’re unsure please speak to a financial adviser. There is likely to be a charge for this.

 

 

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