Footballers- How does the Spring Budget impact you?

On the 16^th March Chancellor Jeremy Hunt delivered the Spring Budget which set out the plans that aim to boost the economy and workforce. We did not expect to see any major tax cuts come into force following on from Liz Truss budget announcements, but many speculated that there would be some changes in the pension legislation.

Summary:

---

INCOME TAX

No new changes came into force in March 2023, however, those changes previously introduced in July still stand. These have been recapped below:

• The Additional Rate threshold will still fall to £125,140 from the 6^th April 2023. This was previously set at £150,000.

What does this mean?

For many, especially in sport, this will now mean that they are classed as an additional rate taxpayer and will be subject to paying income tax at 45% rather than 40%. There are useful planning strategies here to help reduce the impact of this additional tax levy, such as pension contributions (see Annual Allowance).

• dividend allowance is due to decrease from April 2023 to £1,000 and then again to £500 in 2025.

What does this mean?

Those who take a dividend ie, if you own shares, you will now loose £1,000 of the tax-free allowance in 23/24. This may make other investment strategies such as pensions and bonds more attractive to those who pay higher rates of tax.

---

CAPITAL GAINS TAX

Separation and divorce

As announced in July 2022, the rules that apply to transfers of assets between married couples and civil partners who are in the process of separating will be given up to three years in which to transfer assets between each other (which is called no gain/no loss transfers) even when they don’t live together; and unlimited time if the assets are the subject of a formal divorce agreement.

What does this mean?

Previously, couples who separated and no longer lived together would only have until the end of the tax year in which they separated to transfer assets to each other. After this point it would be treated as a transfer of value- ie a gift, and it would be subject to capital gains tax.

Why would couples want to give assets to each other in divorce?

Often in divorce, the wealth accumulated is split. Be that fixed assets (house/cars) or liquid assets (cash/investments). As there had previously been a time limit on how quickly you needed to separate the wealth when divorce proceedings started, there is now more time to negotiate and agree an amicable settlement.

---

PENSIONS

Lifetime allowance abolished.

The amount of money you can build up in pensions without triggering a tax charge when you come to access pension benefits will be completely abolished from the 2024/25 tax year. From 6 April 2023, savers accessing pension benefits which are more than the lifetime allowance will no longer face a tax charge of up to 55% on the excess.

The 25% tax-free lump sum which you can take from your pension at 55, is currently capped at £268,275 ( 25% of the current lifetime allowance) and the government has announced that the cap will remain and be frozen at this level.

What does this mean?

Before the Budget, people who had saved more than £1,073,100 into their pensions would be taxed on the excess over this figure. This rule has now been ‘abolished’ meaning your pension can accumulate to any value and you won’t be penalised. Remembering through, as a non-earner the maximum you can save into a pension per year is £3,600 gross and for earners it is 100% of your ‘relevant earning’ or the current £40,000, whichever is lower- with some exceptions if you have not used your full allowances in previous years.

This  is a major milestone, with pensions being so income and inheritance tax friendly, they become even more important in planning conversations. These tax breaks should not go unnoticed. Pension savings for professionals should complement other income producing investments to support the gap between 35- 55 years old.

---

Pension Annual Allowance

Annual allowance increased to £60,000

The standard pension annual allowance, ie, the maximum amount you can save into pensions in any one tax year and receive tax benefits, is being increased from £40,000 to £60,000 from 6 April 2023. In other words, savers will be able to pay up to £60,000 or 100% of their UK relevant earnings (whichever is lower) into pensions each year and benefit from tax relief.

People on very high incomes, ie those currently earning over £240,000 have previously suffered from a reduced annual allowance. If you do have earnings over the £240,000 your previous £40,000 pension annual allowance was tapered down to £4,000 once your income exceeded £312,000.

However- from 6th April, the tapered annual allowance will kick in once someone has an ‘adjusted income’ of £260,000 rather than £240,000 currently. For those earning over £260,000 the minimum that the £60,000* annual allowance can be tapered to is now £10,000 rather than £4,000 once the total income has exceeded £360,000.

*As of the 6th April 2023

What does this mean?

For those people earning between £100,000 -£125,140 they are effectively taxed at 60%. Pension contributions can be used to reduce income and reinstate the personal allowance. There is now much more scope to do this with the annual allowance increasing.

For example, someone earning £160,000 a year could make a £60,000 gross pension contribution and see their adjusted net income fall to £100,000. In doing so the full £12,570 personal allowance, which is taxed at 0%, is regained. Hurrah.  

The recent budget is also beneficial to high earners who want to continue building their tax efficient pension pot with the newly increased £10,000 allowance.

---

PFA PENSION

For those players who have signed a professional contract, the PFA contribute £5,820 per annum into their pension. If you are earning over £312,000 per year, you are exceeding the £4,000 tapered annual allowance cap. This therefore means you will incur a tax charge on the £1,820 excess at 45% (£819). With the new tapered allowance increasing to £10,000, players will no longer suffer a tax charge, and instead now have scope to increase their pension contributions into their personal pension arrangements.

---

RETIRED?

Money Purchase Annual Allowance lifted to £10,000

The money purchase annual allowance is triggered once an individual has flexibly accessed their defined contribution pension, ie, taken their tax-free cash or started to take an income.

Previously, if you had done either of the above, you would only be allowed to contribute £4,000 per year into your pension without triggering a tax charge. However, in a bid to encourage more people back to work, and increase personal pensions provisions, this has now been increased to £10,000.

What does this mean?

For any retirees, this still leaves planning scope to continue paying into your pension and receiving tax relief.

---

CORPORATION TAX

Corporation tax hike to 25% is set to stay and be in force by 6^th April 2023. This is an increase of 6% from the 19% at present. This will affect businesses with profits of more than £250,000. Companies with profits of £50,000 or less will continue to pay tax at 19% (the ‘small profits rate’). Those with profits of between £50,001 and £250,000 will pay tax at 25% but will get marginal relief , i.e a gradual increase between the small profits rate and the main rate.

What does this mean?

Sadly, this means a higher rate of tax for those players who have created businesses whilst playing and after sport with the 25% corporation tax hike is set to stay.

---

CHILDCARE COSTS

“The Chancellor announced 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every single eligible working parent of under 5s gets this support by September 2025” .GOV

What does this mean?

For the partners of players, getting back into work, often as the primary caregiver is difficult. This new funding will help support the spouses return to work or start working after children. Often a playing career can span the country and result in family support being limited.

---