On 15 March 2023 Chancellor Jeremy Hunt delivered the first official Budget of the Sunak government. Keen to stress the need for stability in a challenging economic environment there were only a few surprises – a welcome approach following the mini-budget fiasco from last year. Many of the proposals focused on kick-starting the economy through increased investment incentives and supporting people back to work. However, the rise in corporate tax rates from 19% to 25% in April 2023 looks increasingly at odds with this stance and pushes the UK rate to one of the highest in the developed world.

As is now practice, careful orchestration had seen most of the policy decisions presented in the media in days running up to the announcement in an attempt to cool the markets and counter any unwanted surprises. Summarised below are the key announcements that are relevant to the asset management industry. Further detail will be available in the Spring Finance Bill 2023 due to be published on 23 March 2023.

Income Tax

There were no announcements on headline rates of income tax, as the government is instead relying on fiscal drag to raise taxation on household incomes as previously announced in the Autumn Statement. The income tax personal allowance and higher rate threshold (of £12,570 and £50,270 respectively) were already fixed at their current levels until April 2026 but will now be maintained for an additional two years until April 2028.

The Chancellor had previously advised in the Autumn Budget that the 45% additional tax threshold will be lowered from £150,000 to £125,140 from 6 April 2023 – costing individuals up to an additional £1,243 each.

There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140. The savings allowance (that applies to savings income) for individuals taxed at up to the basic rate of tax is at £1,000, for higher rate taxpayers the allowance is £500 and no allowance is due to additional rate taxpayers.

The basic rate band is frozen at £37,700 up until April 2028 and the basic rate of income tax will remain at 20%, despite previous attempts to reduce it to 19%. The higher rate will remain stable at 40% and, as is typical, there was no mention of the effective 60% rate band between £100,000 to £125,140 where the personal allowance is clawed back – that costs each individual up to £5,028.

Pension Relief

The Chancellor has, as expected, raised the annual limit on pension saving by 50% to £60,000 with effect from 6 April 2023. This limit still tapers down for higher earners although the minimum amount will now be £10,000 rather than £4,000. Taper broadly applies from adjusted income of £260,000 (up from £240,000) and reduces at £1 for each additional £2 of income meaning the minimum is reached at £360,000. If certain pension benefits have already been taken the annual saving limit was reduced to £4,000. This allowance is now raised to £10,000.

In addition, an increase in the life-time allowance was anticipated however, in a surprise and very welcome turn, the limit has been abolished. First introduced in the A-Day pension reforms in 2006 the life-time allowance placed additional tax charges on pension pots over a certain level. However, this acted as a deterrent for many experienced workers to earn more, leading many to reduce their hours or retire early.  From April 2023 no one will suffer a life-time allowance charge.

The maximum tax-free lump sum will though be limited to £268,275 (25% of the current lifetime allowance) unless a fixed protection is in place which would provide for a higher amount. Certain other lump sums may, pending later changes, still incur a charge although this will be at the marginal tax rate rather than 55%. Any policy that encourages further pensions investment will be welcomed across the asset management industry, and at an individual level consideration should be given to increasing pension saving to maximise relief.

National Insurance Contributions

There were no new changes to NIC which will be welcome news. The NIC upper earnings limit and upper profits limit will remain aligned to the higher rate threshold at £50,270 up until April 2028. Perhaps somewhat surprisingly there was no attempt to reintroduce the 1.25% Health and Social Care Levy introduced by the then chancellor Rishi Sunak at the beginning of 2022/2023 that was subsequently reversed by the Truss government effective from 6 November 2022. Despite the apparent need for it to plug the gap in the NHS less than a year ago it now appears that politically the need to stabilise the economy and support growth takes priority.

Corporation Tax

As expected, the increase in the base rate of corporation tax  from 19% to 25% was reconfirmed. No further changes were announced in relation to corporation tax rates in the Budget. This means that, from April 2023, the rate will increase to 25% for companies with profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief.

“…Today we build for the future with inflation down, debt falling and growth up.”

In addition, the bank corporation tax surcharge changes will proceed, meaning that from April 2023 banks will be charged an additional 3% rate on their profits above £100 million and from April 2023 the rate of diverted profits tax will increase from 25% to 31%.


The government has also confirmed that, from April 2023, the rates of taxation on dividend income will remain as follows:

  • Ordinary rate – 8.75%
  • Upper rate – 33.75%
  • Additional rate – 39.35%

Given that these rates increased in line with the 1.25% Health and Social Care Levy it is odd they have not also been reduced. As corporation tax due on directors’ overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%. In addition, the government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.

Dividends on shares held in ISAs and pension schemes are not subject to dividend tax and thus will not be affected by the increase in rates. The ISA allowance for the 2022-23 tax year is £20,000. To make use of the allowance one must invest in an ISA in advance of the 5 April 2023 tax year end, this is especially an important consideration to make given the increase in interest rates.

UK asset managers will again be looking at the comparison between LLP and Ltd structures, factoring in both recent changes and the previously announced increases in corporation tax. The effective tax differential between profit allocations to self-employed individuals and employees increased temporarily from April to November 2022, from 6.43% to 6.77%.

As such HMRC’s interpretation of the salaried and mixed member rules and associated scrutiny placed on managers is set to continue. The widening gap feels ripe for filling with something equivalent to the employer’s NIC, albeit this needs to be balanced with the lack of optionality to roll-up profits under the mixed membership rules.

The most significant movement in terms of structural choice is the increased effective rate of corporation tax and dividend tax combined which from April 2023 becomes higher than extracting value through taking a bonus. This is a substantial change noting that in 2015/16 extracting value via dividends was actually more beneficial than an LLP structure. However, such a position needs to be considered in the context of rolling up value in a corporate vehicle and associated planning opportunities.

Capital Gains

The government had previously announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024. However, the headline rate will remain at 20% for standard gains meaning the reporting fund status will continue to be a valuable regime for investors whilst the differential between income tax and capital gains tax rates remains.

The 10% rate (regardless of any available income tax basic rate band, up to a lifetime limit for each individual) still applies where specific types of disposals qualify for:

  • Business Asset Disposal Relief (BADR) – This is targeted at directors and employees who own at least 5% of the ordinary share capital in the company, provided other minimum criteria are also met. It can also apply to owners of unincorporated businesses.
  • Investors’ Relief – The main beneficiaries of this relief are investors in unquoted trading companies who have newly subscribed shares but are not employees.

Current lifetime limits are £1 million for BADR and £10 million for Investors’ Relief.

Amendments will be made to the rules relating to carried interest enabling individuals to elect an accruals basis of taxation to better align the time a tax liability arises in the UK for carried interest with that of other jurisdictions. This measure is likely to benefit US citizens working in the private equity industry, albeit the impact assessment suggests the government is only expecting this to benefit 30-50 individuals.

No further amendments were proposed to the carried interest rules, which will be a relief given recent media activity suggesting that certain returns from buy-out funds should be taxed at income tax rates.  Carried interest will continue to be taxed at 28%, but the private equity industry will have listened intently to the shadow chancellor’s vociferous response to the Autumn Statement which again singled out the current treatment of carried interest as a key area for reform.

Lastly a measure previously announced to counter avoidance by non-domiciled individuals utilising share-for-share transactions to shelter value built up in UK securities was announced with immediate effect. This demonstrates that the government will continue to act to tackle perceived avoidance. However further changes to the non-domicile regime were not forthcoming, despite calls from some political corners to curtail the regime.

Transfer Pricing Documentation

From April 2023, large multinational businesses operating in the UK and assessable to corporation tax will be required to keep and retain transfer pricing documentation in a prescribed and standardised format, set out in the OECD’s Transfer Pricing

Guidelines (Master File and Local File). This will be extended to businesses assessable to income tax for the 2024/25 fiscal period. In practice this should only hit a minority of the asset management industry as the requirement is expected to align with the Country-by-Country Reporting (CbCR) regime that applies to groups with a consolidated group revenue of more than €750 million.

Additionally, HMRC will continue to consult on a Summary Audit Trail which is a questionnaire that businesses would be required to complete that covers the main steps undertaken in preparing the Local File. There have been concerns that this could present a particularly onerous administrative burden on taxpayers. Regardless of size, best practice is that all asset managers should maintain and document an OECD compliant transfer pricing policy given the potential interaction with the UK’s investment management exemption (IME) and disguised investment management fee legislation.

OECD Pillar 2

Following consultation, the government will legislate to implement the globally agreed G20-OECD Inclusive Framework Pillar 2 in the UK. The policy is designed to impact groups with annual global revenues exceeding €750m that have business activities in the UK. For accounting periods beginning on or after 31 December 2023 the government will:

  • Introduce an Income Inclusion Rule (IIR) which will require large UK headquartered multinational groups to pay a top-up tax where their foreign operations have an effective tax rate of less than 15%.
  • Introduce a supplementary Qualified Domestic Minimum Top-up Tax (QDMTT) rule which will require large groups, including those operating exclusively in the UK, to pay a top-up tax where their UK operations have an effective tax rate of less than 15%.

Both the IIR and QDMTT will incorporate the substance based income exclusion that formed part of the G20-OECD agreement. This will be legislated for in Spring Finance Bill 2023. The government intends to implement the backstop Undertaxed Profits Rule in the UK, but with effect no earlier than accounting periods beginning on or after 31 December 2024.

Certain entities will be excluded from the rules. These include governmental entities, international organisations, non-profit organisations and pension funds. There will also be a provision to exclude investment funds and real estate investment vehicles when these entities are the ultimate parent of the group, to protect their status as tax neutral investment vehicles. The investment management industry will need to pay close attention to detail to ensure investment structures are not adversely impacted.

Nonetheless, the measure represents a fundamental shift in global taxation aimed at international structures exploiting low tax jurisdictions with the UK expecting to raise an additional £2 billion per annum. The measure again aligns with the CbCR regime, meaning most asset managers in the UK should not be impacted, however potential application to fund structures will need to be considered and any associated carve outs.

Qualifying Asset Holding Companies (QAHC) Rules

The QAHC regime was introduced to recognise circumstances where an intermediate asset holding company (AHC) is used to facilitate the flow of capital, income and gains between investors and underlying assets. The regime taxes investors similarly as if they had invested directly in the underlying assets, with the objective that the QAHC pays no more tax than is proportionate to the activities it performs. Amendments will be made (and in some cases backdated) to the definition of collective investment vehicle, anti-fragmentation rules and clarification that a securitisation company cannot also be a QAHC.

Real Estate Investment Trusts (REITs)

The measure makes amendments to the tax rules applying to REITs, including some of the conditions that determine whether a company qualifies to be a REIT. The real estate sector has evolved since the introduction of the regime in 2006 and the number of large institutional investors in REITs has increased, so that certain rules have become outdated or create unnecessary costs, administrative burdens and constraints for some REITs.

Genuine Diversity of Ownership (GDO) Condition

The GDO condition is used across a range of tax regimes with the purpose of preventing investment funds that are only open to a small number of predetermined investors from benefitting from those regimes. This measure makes amendments to the GDO condition contained in the QAHC, REIT and Non-Resident Capital Gains rules.

The amendments are likely to be well received as they provide that where an individual investment entity forms part of a wider fund arrangement, that entity can satisfy the GDO condition by reference to the arrangements as a whole (even if the individual entity would not satisfy the GDO condition when considered in isolation).

Capital Allowances

The super-deduction regime, which gives a 130% enhanced first year allowance (FYA) to companies on the purchase of qualifying plant and machinery, comes to an end on 31 March 2023. Instead, the government has announced Full Expensing, a 100% FYA, which allows companies to deduct the cost of qualifying plant and machinery from their profits straight away with no expenditure limit. Qualifying expenditure will include most plant and machinery, as long as it is unused and not second-hand, but will not include cars. Full Expensing will be effective for acquisitions on or after 1 April 2023 but before 1 April 2026.

A 50% FYA for other plant and machinery including long life assets and integral features (known as special rate assets) will operate along similar lines. Full Expensing and the 50% FYA are only available for companies and not for unincorporated businesses.

The Annual Investment Allowance (AIA) gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023. The government has announced that the temporary £1 million level of the AIA will become permanent and the proposed reduction will not occur.

Asset managers incurring expenditure on plant and machinery should carefully consider the timing of their acquisitions to optimise their cashflow.

The government will also extend the 100% first year allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes.

Research and Development (R&D)

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%. A higher rate of SME payable credit of 14.5% will apply to loss-making SMEs which are R&D intensive. To be R&D intensive the ratio of the company’s qualifying R&D expenditure must be 40% or above the company’s ‘total expenditure’ for the period. This equates to a receipt of £27 for every £100 of R&D expenditure.

Other announced changes to the R&D regime include expanding qualifying expenditure to include the costs of datasets and cloud computing. All claims for R&D reliefs will have to be made digitally and be accompanied by a compulsory additional information form. Companies will also need to notify HMRC that they intend to make a claim within six months of the end of the period of account to which the claim relates, generally if they have not made an R&D claim in the previous three years. These changes apply to claims in respect of accounting periods which begin on or after 1 April 2023 apart from the additional information form, which will be required for claims made on or after 1 August 2023.

The restriction for relief on overseas expenditure, designed to refocus support towards UK innovation, will now come into effect from 1 April 2024 instead of 1 April 2023.


The government is introducing changes to the self-assessment tax return forms requiring amounts in respect of crypto assets to be separately identified. The changes will be introduced on the forms for tax year 2024 to 2025.

Legislation to define ‘designated cryptoassets’ and include them in the list of investment transactions which qualify for the IME was published in December 2022. The legislation applies for income tax purposes from 2022/23 and for corporation tax purposes for accounting periods that include 19 December 2022 onwards.

Seed Enterprise Investment Scheme

From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.

Company Share Option Plan

From April 2023, qualifying companies will be able to issue up to £60,000 of Company Share Option Plan (CSOP) options to employees, twice the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.


Following the consultation on proposed reform of the VAT rules for fund management to improve legal clarity and certainty, (which closed in February), the government is considering the responses and continuing to discuss the proposals with interested stakeholders. The government will publish its response to the consultation in the coming months.

Building on the recommendations of the industry working group established to consider the future of VAT and financial services, the government will continue working with industry stakeholders to consider possible reforms to simplify the VAT treatment of financial services, reducing inconsistencies and providing businesses with greater clarity and certainty.

The government announced pre-pandemic that it intended to change the way interest and penalties applied for VAT purposes. After a number of delays the new rules were implemented for VAT periods starting on or after 1 January 2023. The default surcharge was replaced by new penalties if a VAT return is submitted late or VAT is paid late. There are also changes to how VAT interest is calculated. The changes are as follows:

  • VAT returns submitted late – late submission penalties will work on a points-based system. For each VAT return submitted late one penalty point will be imposed. Once a penalty threshold is reached, a £200 penalty will apply, with a further £200 penalty for each subsequent late submission.
  • Late payment of VAT – the rate of penalty will depend on how late the payment is. However, to give businesses time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the VAT is paid in full within 30 days of the payment due date.
  • How late payment interest will be charged – for VAT periods starting on or after 1 January 2023, HMRC will charge late payment interest from the day the payment is overdue to the day the payment is made in full.
  • Introduction of repayment interest – the repayment supplement was withdrawn from 1 January 2023. For VAT accounting periods starting on or after 1 January 2023, HMRC will pay repayment interest if they are late in making a refund.

Inheritance Tax

The inheritance tax nil-rate bands are already set at current levels until April 2026 and will stay fixed at these levels for a further two years until April 2028. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000 and the residence nil-rate band taper will continue to start at £2 million.

Estates in Administration and Trusts

Changes are introduced which will affect the trustees of trusts and personal representatives who deal with deceased persons’ estates in administration, and beneficiaries of estates.

For 2023/24, technical amendments are made to ensure that, for beneficiaries of estates, their tax credits and savings allowance continue to operate correctly.

For 2024/25, changes will:

  • Provide that trusts and estates with income up to £500 do not pay tax on that income as it arises.
  • Remove the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income.
  • Provide that beneficiaries of UK estates do not pay tax on income distributed to them that was within the £500 limit for the personal representatives.


The rates of tax for company cars remain frozen until 2024/25. Future car benefit rates have been announced for 2025/26 to 2027/28:

  • For 2025/26, the rates for emissions under 75gm/km increase by 1%.
  • For 2026/27, the rates for emissions under 75gm/km increase by a further 1%.
  • For 2027/28, the rates for emissions under 75gm/km increase by a further 1%.

The charge for electric cars will rise from 2% to 5% over that period.

Making Tax Digital (MTD)

The MTD regime is based on businesses being required to maintain their accounting records in a specified digital format and submit extracts from those records regularly to HMRC. In what appears to be a never-ending story, the government has announced a further delay in MTD for income tax self-assessment (ITSA). The mandating of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, a change from the original £10,000 limit. This will have an impact on LLPs and individual partners who will need to consider integrating their accounting and tax processes to ensure smooth running under the regime.

Basis Period Reforms

As part of the MTD project, changes have been made to alter the rules under which trading profits made by self-employed individuals and partnerships are allocated to tax years. The changes mainly affect unincorporated businesses that do not draw up annual accounts to 31 March or 5 April. The transition to the new rules will take place in the 2023/24 tax year and the new rules will come into force from 6 April 2024. This will create not only an administrative burden for businesses with a YE which is not 31 March or 5 April but also impact cashflow, as extra tax may be due.

Affected self-employed individuals and LLPs may consider changing their year-end to align with the tax year or alternatively retain their existing accounting period but the trade profit or loss that they report to HMRC for a tax year will become the profit or loss arising in the tax year itself, regardless of the chosen accounting date. Broadly, this will require apportionment of accounting profits into the tax years in which they arise.


Working parents in England will be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is nine-months old to when they start school.

This will be rolled out in stages:

  • From April 2024, all working parents of two-year-olds can access 15 hours per week.
  • From September 2024, all working parents of children aged nine months up to three-years old can access 15 hours per week.
  • From September 2025 all working parents of children aged nine months up to three-years old can access 30 hours free childcare per week.

Where parents need childcare for more than 38 weeks a year, they are able to spread their free hours entitlement over a higher number of weeks.