Here’s a summary of the pension and tax changes announced in the mini-budget/spring statement that may affect your members.
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. This comes against a backdrop of rising inflation and lower growth predictions for the UK economy.
Prices rose by 6.2% in the 12 months to February – the fastest for 30 years – as fuel, energy and food costs surge.
The Government’s forecaster, the Office for Budget Responsibility (OBR), said inflation is expected to average 7.4% in 2022. Real household disposable incomes per person – the money people have to spend after covering essentials, and taking into account inflation – are forecast to fall by 2.2% in 2022/23.
The UK economy is forecast to grow by 3.8% this year, according to the OBR – down from its previous prediction of 6%. The economy is then forecast to grow by 1.8% in 2023, and 2.1% in 2024.
Below is a summary of the main changes affecting members, some of which have previously been announced.
National insurance contributions
The Chancellor announced that the national insurance contribution (NIC) threshold will be increased from £9,568 to £12,570 from 6 July 2022.
As previously announced, from April 2022, the rates of NICs are due to increase by 1.25%. Rates of dividend tax are also due to increase by 1.25% from April 2022. From April 2023, the 1.25% NICs increase will be replaced by a new Health and Social Care Levy (that is, NICs rates will revert to their current levels).
Income tax rates
For the 2022/23 tax year, the basic 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. This higher rate income tax threshold will be frozen at £50,270 until 2026.
It was announced that the basic rate of income tax will be reduced from 20% to 19% in 2024. You can see the tax rates and thresholds for 2022 to 2023 on the Government’s website .
As Scotland and Wales have the right to set their own rates of income tax, the rate of tax members pay may depend on where they live in the UK.
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.
Tax-free personal allowance
For the 2022/23 tax year, starting on 6 April, the standard UK-wide Personal Allowance will stay at £12,570. In the Budget of March last year the Chancellor announced that it will be frozen at this level until 2026.
Pension annual allowance for 2022/23
The pension annual allowance remains the same for 2022/23. The limit remains at £40,000 or 100% of pension savers’ earnings in a tax year, whichever is lower, although it could be less for higher earners or non-earners, or those who have already started taking money from their pension savings.
Lifetime Allowance will remain at its current level of £1,073,100 until April 2026. This is the total amount of pension benefits a person can build up during their lifetime across all pension schemes, before an additional tax charge applies.
The State Pension will rise by 3.1% from April 2022, as confirmed in the Autumn 2021 Budget. This will affect whether people are 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.
Capital gains tax
The capital gains tax-free allowance will also remain at the same level until 2026, which might affect pension savers if they have other investments, in addition to pensions or Individual Savings Accounts (ISAs).
ISA allowances for 2022/23
The ISA allowance in 2022/23 will be £20,000. This means pension savers can save up to £20,000 in a Cash or Stocks and Shares ISA, or a combination of both. The Junior ISA (JISA) allowance stays at the current level too, which is £9,000.
National living wage
The national living wage paid to workers aged 23 and over will rise from £8.91 per hour to £9.50 per hour from 1 April 2022. This represents an extra £1,000 per year for those working full time. The national minimum wage for workers aged under-23 and apprentices will also rise.
Fuel duty will be cut by five pence a litre from 18:00 GMT 23 March 2022, until March 2023.
Pensions and Stocks and 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.