Wednesday marked the first Spring Budget for Chancellor Jeremy Hunt following his Autumn Statement last November. He built it around four 'Es'.

With mild echoes of the ill-fated mini-Budget under Prime Minister Liz Truss and Chancellor Kwasi Kwarteng, albeit with less than that full-splurge agenda, plus full OBR input and prior consultation on many if not all policy changes, this was a pro-growth budget. Hence, given some improved news on the public finances, there were measures aimed at incentivising business investment ("Enterprise"), keeping people in work ("Employment"), announcement of phased changes to support working families with early years education and wrapround childcare, that having been identified as an important supply-side reform ("Education") and initiatives to address geographic disparities in the UK ("Everywhere").

It was the first two goals that formed the backdrop to two key announcements:

  • First, a three-year commitment to full-expensing for corporation tax (aimed at lessening the impact of the planned rate-rises and particularly to incentivise capital expenditure) said to be worth £27bn over the period
  • Second, a very significant loosening of the pension contribution rules which many had argued were disincentivising higher earners, especially doctors, and other workers from staying in work (a projected giveaway of £1.1bn over the same three-year period).

These are likely to be the headline-grabbing measures for most private clients. We give our brief reaction below to these measures and the other main impacts from a personal tax, business tax and private wealth perspective.

Business owners

If you are a business owner, the focus of this Budget was investment. This is both for investment generally and also to encourage loss making SMEs through the introduction of a more generous tax credit for research and development ("R&D") intensive businesses. There was an acknowledgement in the Chancellor's statement that the 19% corporation tax rate had not itself led to growth. By contrast, his new measures are said to be more targeted to encourage it. The 130% super deduction which was due to expire this year, is to be replaced by the full expensing for three years. At a 25% corporation tax rate, this, in effect, produces much the same result as the super deduction. Of course, the same issue will arise in 2026 as we have seen recently with uncertainty regarding the continued availability of enhanced or accelerated relief when decisions are made closer to 2026 on investment outlays. It's worth noting though, that the Chancellor committed to an intention to make full expensing permanent "as soon as we can responsibly do so".

The R&D intensive tax credit will apply to businesses that spend 40% of their total outlay on R&D activity, which are likely to be start-ups and early growth businesses. The credit (tantamount to a payment from government) will be £27 for every £100 spent on R&D expenditure. This is clearly designed to stimulate more investment in R&D, where the UK lags considerably behind its economic peers. This will help smaller scale businesses, but more would be required to encourage larger or more mature businesses to upscale R&D in the UK.


The planned withdrawal of the Lifetime Allowance ("LTA") in a future Finance Bill is welcome. The removal of the LTA tax charge (from 6 April 2023) also provides an unexpected short term opportunity for pension funding in the current 2022/2023 tax year, with tax relief of up to 45% being available on these contributions. There will also be scope for pension funding in subsequent tax years that would otherwise not have been available without losing "protection" against an LTA tax charge. 

As ever, the position is not quite as simple as it first appears: the opportunity comes with strings attached. If you currently hold protection (Enhanced Protection or Fixed Protection) on your pension fund, it is very important that you take advice before paying a further contribution, as any existing protection could be lost. Whilst the primary purpose of protection was to allow a higher level of pension benefit to be held before incurring an LTA tax charge, an additional benefit of protection was the opportunity to take a higher amount of your pension fund as tax free cash. Whilst a new contribution now allows you to increase your pension fund without LTA considerations, the amount of tax free cash you could take from your pension could significantly reduce. The payment of a new contribution, and the loss of protection, could restrict tax free cash to a maximum of £268,275. This compares with up to £450,000 if Fixed Protection was retained. (For anyone without protection, the maximum amount of tax free cash has now been capped at its current level of £268,275.)

An increase in the Annual Allowance ("AA") from £40k to £60k is also welcome, but the Tapered AA still remains in place to restrict contributions for high earners. However, regardless of the level of your earnings, the Tapered AA increase to a minimum of £10,000 from 2023/2024 provides a 250% increase on the current minimum level of just £4,000.

Despite the removal of the LTA, there was no reference in the Budget to any change to the current generous Inheritance Tax ("IHT") treatment of pension funds. We therefore anticipate, under current and proposed legislation, the opportunity to pass pension funds to future generations (outside the scope of IHT) will remain.

Finally, who knows if the abolition of the LTA will survive long following general election; those who are considering additional contributions may wish to get on with it!

The Small Print / other measures

More generally, most, if not all, other tax rate thresholds remain static or less generous than in the current tax year, harking back to the fiscal drag that we highlighted in our reaction to the Autumn Statement. Note that the increased income tax burden on higher earners by dragging more into the 45% income tax bracket (it will now apply from £125,140 from April 2023, down from £150,000), increased tax on dividends (both the addition of 1.25% to the rate and the halving of the dividend allowance) and the reduction to the capital gains tax annual exemption (from £12,300 to £6,000) will all kick in from April. 

IHT nil rate band thresholds stay the same and inflation inevitably means that many families will end up paying more. Agricultural Property Relief ("APR") and Woodlands Relief has also been restricted to UK property only. In better news, however, the government has committed to consulting on the tax treatment of ecosystem service markets, and the potential expansion of APR to cover certain forms of environmental land management.

There's also a welcome development for divorcing couples. They will be given more time to divide assets between them without capital gains tax consequences; the Finance Bill will be used to extend the period to three years after the year of separation, as well as applying the same no gain no loss treatment to later transfers which take effect as part of a formal divorce agreement (with some related adjustments to main residence relief, too).

There's also good news for SEIS investors – with the scheme made more generous, as previously trailed, and for non-UK domiciled taxpayers, with no significant changes made to their tax treatment save for one narrowly drawn anti-avoidance measure relating to share for share exchanges.

It’s a mixed bag, therefore: pro-growth and employment initiatives remaining balanced with tax increases largely by adjustment to the corporation tax rate as trailed, and more fiscal drag: the government still has bills to pay. Finally, plans to close the Office of Tax Simplification, which Kwasi Kwarteng first announced in September 2022, will still go ahead.

This article was also authored by Caroline Pellow, Practice Development Lawyer.