More detail is yet to come, with draft legislation for several of the announcements being published on 23 March 2023. If you would like to discuss the tax implications of any of the following measures, please contact a member of the Tax team.
The Budget launched a refocused investment zones programme to catalyse growth in 12 clusters across the UK. This is a much scaled-back version of the levelling-up scheme that was initially announced by the Government in September 2022 (introduced by Liz Truss and Kwasi Kwarteng before being largely shelved in the Autumn Statement). Eight clusters have been shortlisted for England (the East Midlands, Greater Manchester, Liverpool, the North East, South Yorkshire, the Tees Valley, the West Midlands and West Yorkshire) and the remaining clusters are to be in Scotland, Wales and Northern Ireland with details to be announced by the end of 2023.
After investing considerable time and resource applying for investment zones at the end of last year, local authorities now have a new regime to contend with, and there is a lot to consider. Alongside the Budget, the Government published a policy prospectus and a zone selection methodology note. Full technical guidance on how to submit a proposal is awaited but in the meantime the Government has invited local partners from the English clusters to begin discussions.
Each English investment zone will have access to support worth a total of £80 million over five years, including tax reliefs and grant funding. Investment zones will have access to a single five year "tax offer" consisting of enhanced rates of capital allowances, structures and buildings allowance, relief from stamp duty land tax, business rates and employer national insurance contributions. The total funding can be used flexibly between qualifying spending and the tax advantages. Local authorities and their partners will need to undertake a review, and understand potential tax liabilities and reliefs in order to weigh up how allocation of funding is most favourable to them.
As part of the Budget, the Government published a response to its consultation on landfill tax, and introduced a new grant scheme for local authorities in England.
In July 2022, the Government consulted on the current landfill tax regime (as it applies to England and Northern Ireland) and its impact on local regeneration and remediation of contaminated land. The aim of the consultation is to help channel the design of a future scheme intending to support local authorities overcome any barriers to regeneration created by the current tax. The Government is of the view that whilst landfill tax had been highly effective since its implementation in diverting waste from landfill and encouraging more sustainable waste management solutions, the tax was not intended to create situations that prevented the redevelopment, remediation, or protection of land in local communities.
As part of the Budget, the Government stated that it intends to continue engagement with stakeholders before making further announcements, but confirmed two specific measures:
- the introduction of a landfill tax grant scheme - a grant scheme fund by the Government to cover costs of landfill tax to public bodies in England, where such costs are acting as a determinative barrier to the remediation and redevelopment of contaminated land; and
- the reaffirmation of uprated landfill tax rates - as already announced in the Autumn Budget 2021, both the standard and lower rates of Landfill Tax will increase from 1 April 2023 in line with the Retail Prices Index rounded to the nearest 5 pence.
The introduction of a landfill tax grant scheme will welcomed by local authorities, but with a further consultation on policy design expected, it is unlikely that change will be effected in this Parliamentary term.
Business rates are already a matter devolved to the Scottish, Welsh and Northern Irish Governments. In the Budget, the Chancellor set out further steps to allow two mayoral regions of England (West Midlands Combined Authority and Greater Manchester Combined Authority) to retain 100% of the business rates they collect. This will in turn allow these areas further capability to manage their own local transport, employment, housing and net zero priorities.
In another boost to local leadership, the Government has indicated that in the next Parliament, it would expand local retention of business rates to more geographical areas. However, there is currently little detail on how Government will engage with interested councils to achieve this.
In addition, the Government has published the summary of responses to a business rates technical consultation launched in November 2021. It constitutes the final part of the business rates review (originally commenced in March 2020) before the introduction of the Non-Domestic Rating Bill in Parliament. Amendments prompted by stakeholder participation in the consultation include:
- the extension of a proposed 30-calendar day reporting window on changes to occupier and property characteristics affecting business rates to a 60-day window;
- the extension of the three-month window to challenge 2026 rateable values to a six-month window, with the three-month window not now expected to be introduced until 2029; and
- the removal of the constraint in section 47(7) of the Local Government Finance Act 1988 on the retrospective award of business rates relief, allowing local authorities to apply relief retrospectively and set their own rules for notification of reliefs in their areas from 1 April 2024.
These moves towards devolving further powers for local areas to fully control the revenues they collect from business rates, in addition to funding announced for investment zones and levelling up projects, suggest that there will be opportunities for the regions of England (outside of London and the South East) to develop their economic landscapes to attract business and investment.
As widely touted beforehand, the Chancellor announced a number of changes to pension taxation allowances and thresholds. The Government suggests this package of measures is part of a broader attempt to get people, particularly those aged 54 to 60 back into work, and to stay in work longer.
Tinkering with pension tax allowances has been mooted for a number of years, particularly in response to the headline-grabbing issue of NHS doctors and other public professionals retiring early or reducing their hours to avoid exceeding the annual and lifetime allowances (over which they would face punitive tax charges), due to the multiple applied to their defined benefit pension schemes.
From 6 April 2023, there will be changes to the annual allowance, the lifetime allowance and the money purchase annual allowance.
The annual allowance imposes a limit on the amount which can be saved in a pension pot (including defined contribution and defined benefit schemes) in each tax year, without incurring a specific tax charge. For defined benefit schemes, the limit applies by reference to a multiple of the annual increment in pension benefit. From 6 April 2023, the annual allowance, will be raised from £40,000 to £60,000. There are also increases to the levels at which the annual allowance is tapered for higher earners (the adjusted income threshold will increase from £240,000 to £260,000).
The "rabbit out the hat" announcement in the Budget was the abolition of the lifetime allowance, the maximum amount of saving that a member can make in a registered pension scheme without incurring a tax charge. The lifetime allowance is currently £1.07 million. The charge will be removed from 6 April 2023 and abolished fully from 6 April 2024. Although there will be no limit on the size of the pension pot that can be saved without a tax charge, the tax-free 25% will continue to apply to only the first £1.07 million of pension savings.
The money purchase annual allowance (which limits the tax-relieved savings an individual can make into a registered pension scheme once they flexibly access their defined contribution pension savings) will be increased from £4,000 to £10,000.
The increased thresholds will only impact a very small percentage of the workforce and is particularly beneficial to higher earners who've earned enough in their lifetime to push these thresholds, typically those in government service or quasi-government service including doctors, senior teachers, civil servants and police officers. The majority of the UK population will not benefit from these changes. It has to be said that the policy objective could have been achieved more simply and without reintroducing a tax subsidy for retirement saving for the highest paid.
In addition to changes to the thresholds, the Government will also be consulting on aspects of the management of assets by the Local Government Pension Scheme in England and Wales. The Government has set out that it will publish a consultation shortly to propose:
- the transfer of all listed assets into their pools by March 2025;
- using a smaller number of pools in excess of £50 million to optimise benefits of scale; and
- the use of investment opportunities in illiquid assets.
A key tenet of an effective tax system is the ability for taxpayers to anticipate the tax effect of actions they take. This requires a degree of stability. Whilst appreciated by a small group of people in the short term, additional tinkering and complexities are the enemy of much-needed stability. Pension taxation and its reform needs to be considered as a whole in the long term and requires a considered approach: it appears unlikely to be forthcoming from this Government. The question will be what its successor will do when it takes office in less than two years from now.
If you would like to discuss any of the above measures please contact any member of the Tax team.