Having had some time to digest and reflect on the announcements in the Chancellor’s 2023 Spring Budget, we’ve provided a summary of the key impacts on the Local Government sector below. The Budget contained various measures targeted towards Local and Central Government. These have largely responded to what Councils have been asking for – more funding for regeneration accompanied by lower borrowing rates, broadening of employment support and support for maintaining public swimming pools, pothole repairs and investment in early years childcare. A third round of levelling up funding will also allow Councils to continue transforming their communities, albeit there are wider concerns around the bidding process for this and other funding schemes.

More widely, as has been the case for previous budgets, the LGA have expressed their disappointment that there was no mention of adult social care or children’s services in the Budget. However, on the whole, the Chancellor’s announcements seem to be positive for the Sector as they address many areas of concern that have been previously highlighted.

From a tax perspective, we have outlined some of the key measures affecting Councils below.

Tax Incentivised UK Investment Zones to be established

Funding of £80 million each to provide support with spending and access to tax incentives for refocussed Investment Zones

A refocused Investment Zones programme has been launched, with the goals of growing priority sectors and addressing economic disparities between regions. The proposal is to provide targeted support to five priority sectors through access to a flexible package of support for businesses located in the planned 12 Investment Zones. For the eight zones in England, each Investment Zone is expected to benefit from Government interventions (including tax reliefs and grant funding) worth up to £80 million over a five-year period. Legislation to give access to tax reliefs equivalent to those for Freeports will be included in Finance Bill 2023 and the Government anticipates funding will commence in 2024/25.

The Government expects to establish 12 Investment Zone across the UK. Eight Investment Zones will be located in England. The potential locations in England have already been identified (the Mayoral Combined Authorities of East Midlands, Greater Manchester, Liverpool City Region, the North East, South Yorkshire, Tees Valley, West Midlands, and West Yorkshire) and reflect the Government’s ‘levelling up’ agenda by targeting areas which it believes have underperformed economically. Most of the published detail regarding possible incentives relates to these zones.

The remaining four Investment Zones will be located across Scotland, Wales and Northern Ireland (with at least one zone in each nation) and details of the incentives for these are to be agreed in conjunction with the relevant Devolved Administrations. For each of the areas in England identified as a possible location, the Government intends to work with the relevant Mayoral Combined Authority or Upper Tier Local Authority and other local stakeholders to develop tailored proposals for the Investment Zone.

Each Investment Zone is expected to focus on growing clusters of businesses aligned with one or more priority sectors: Digital and Tech, Green Industries, Life Sciences, Advanced Manufacturing and Creative Industries. Subject to the overall funding limit of £80 million for each zone, the plans envisage allowing considerable flexibility over the precise incentives offered to support these clusters.

This flexibility extends to any tax incentives. The incentives which could be offered correspond to those currently offered to Freeports, which includes:

  • Full stamp duty land tax relief for commercial property;
  • Full business rates relief for newly occupied and some other business premises;
  • Enhanced capital allowances offering a full deduction for certain qualifying expenditure on plant and machinery;
  • Enhanced structures and buildings allowance, broadly allowing relief for 10 percent of the cost of relevant structures and buildings each year; and
  • Relief against the cost of Employer’s National Insurance contributions for new employees.

Among the key design decisions for each Investment Zone will be whether to offer the full package of tax incentives and the size of the site(s) in which these will be available. In some cases, the proposals for individual Investment Zones may opt for an approach which does not maximise the potential use of tax measures so as to preserve a larger proportion of the overall £80 million funding envelope for other interventions (for example, grants, training, infrastructure and support services).

Where the full package of tax incentives is provided across Investment Zones and the sites are the maximum permitted size (600 hectares), then the Government estimates the value of these tax measures over five years at £45 million per Investment Zone, although clearly the value for each business located in an Investment Zone will be rather less than this.

With the approach to be adopted in each case being influenced by local stakeholders, the flexibility in how incentives are provided and resulting likelihood of different Investment Zones taking different positions raises the prospect of an interesting economic experiment, comparing the relative attraction of tax and non-tax measures in encouraging investment and growth.

Changes to Pension Savings Limits

From 6 April 2023 the pension savings annual allowance will increase and the lifetime allowance charge will be removed

To strengthen the labour market by removing disincentives to remain in work for individuals who might otherwise consider retirement, significant changes will be made to the limits on tax relieved pension savings in registered pension schemes. The standard annual allowance will increase from £40,000 to £60,000 and the lifetime allowance charge will be removed. The minimum tapered annual allowance will increase from £4,000 to £10,000, as will the money purchase annual allowance. Whilst these changes will be welcomed by affected individuals, it will be necessary to consider the detail of how these reforms might affect those with significant pension savings and relevant pension protections.

The current position

Pension savings under a registered defined contribution pension scheme are, in summary, treated as follows:

  • Employer’s contributions are exempt from both income tax and national insurance contributions; and
  • Employee’s contributions are eligible for income tax relief provided they do not exceed the member’s UK taxable remuneration.

However, to the extent that the total pension contributions exceed the member’s available annual allowance in any tax year, these are subject to an annual allowance charge at the employee’s marginal rate of income tax.

The current standard annual allowance is £40,000. For individuals who have both ‘threshold income’ above £200,000 and ‘adjusted income’ above £240,000, the standard annual allowance tapers down by £1 for each £2 of adjusted income above £240,000.

This means that the minimum tapered annual allowance for those with adjusted annual income of £312,000 or more will be £4,000 (though individuals can potentially carry-forward any unused annual allowance from the last three tax years).

When the member takes distributions from the scheme after age 55:

  • They can take up to 25 percent of the funds within their available lifetime allowance free of tax (the standard lifetime allowance is currently £1,073,100, which caps the tax-free lump sum at £268,275, though some individuals have a protected right to take a higher pension commencement lump sum);
  • The remaining funds within the lifetime allowance are subject to income tax; and
  • Any remaining funds in excess of the lifetime allowance are subject either to the lifetime allowance charge at 55 percent if taken as a lump sum, or to the lifetime allowance charge at 25 percent, plus income tax at the member’s marginal rate, if taken as a pension.

A money purchase annual allowance of £4,000 also applies to limit the amount individuals can contribute to defined contribution pension schemes after having flexibly accessed a pension.

The tax treatment of defined benefit registered pension schemes is essentially similar, but there are important differences. For example, the annual benefit accrual (calculated according to a prescribed statutory formula) – rather than contributions made – is tested against the member’s available annual allowance.

What’s changing?

From 6 April 2023, the standard annual allowance will increase from £40,000 to £60,000. Individuals will still be able to carry forward any unutilised annual allowance from the previous three tax years as at present.

The ‘adjusted income’ threshold for annual allowance tapering will increase from £240,000 to £260,000 and the minimum tapered annual allowance will increase from £4,000 to £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an annual allowance of £10,000).

The money purchase annual allowance will also increase to £10,000, serving to encourage those drawing a pension to continue working. Also from 6 April 2023, the lifetime allowance charge will be removed, with the lifetime allowance itself formally abolished at a future date.

The maximum tax-free pension commencement lump sum will be capped at £268,275 (i.e., a restriction set at 25 percent of the current lifetime allowance) for individuals without relevant pension protections and maintained at that level.

What should pension scheme member and employers consider?

The proposed reforms give rise to a number of points to consider, which include:

  • For those with relevant lifetime allowance protections, it will be critical to confirm how these reforms will affect their tax-free pension commencement lump sum once the detailed legislation is available (e.g. those with certain types of protections could lose these if they restart pension contributions and this may significantly impact the enhanced tax free lump sum they are currently entitled to by reducing it to the frozen £268,725 instead of 25 percent of their previously protected lifetime allowance);
  • Similarly, those with UK tax relieved savings in international pension plans where the annual and lifetime allowances apply (e.g., inbounds currently in the UK or those with legacy pension plans based overseas from periods of UK working) who are considering pension consolidation or are approaching retirement should consider taking detailed personal advice in order to confirm their specific UK tax positions;
  • Abolition of the lifetime allowance might make it more attractive to transfer foreign pension plan funds to UK schemes;
  • As the annual allowance will increase, and unutilised annual allowance can still be carried forward – and as a lifetime allowance charge will no longer potentially be incurred on reaching age 75 (or on dying before reaching age 75) – some individuals might want to consider whether enhanced pension contributions might have a role in inheritance tax planning (assuming they would be able to claim associated income tax relief, and registered pension savings remain outside the estate for inheritance tax purposes) – although bearing in mind that in many cases the recipients of post-death distributions from the pension scheme will be subject to income tax at their marginal rate;
  • As registered pension scheme savings will no longer be subject to lifetime allowance ‘testing’ at age 75 (with the lifetime allowance charge being imposed on any ‘excess’ monies), this may encourage many members to delay taking benefits (and, in some cases, not even taking lifetime distributions at all);
  • There could also be further complications in relation to defined benefit arrangements (as e.g. the legislation currently allows ‘lifetime allowance excess’ benefits to be taken in lump sum form before reaching age 75);
  • Employers might consider how they could communicate these changes to employees so that they understand the role their pension now plays in their total reward package, and what changes might be made to the employee value proposition (e.g. offering affected employees the opportunity to increase pension contributions flexibly from April 2023 in order to benefit from the increased annual allowance);
  • Employers who operate a cash alternative to pensions for higher earners who are subject to the tapered annual allowance will need to revisit the thresholds and amounts in the light of the changes announced;
  • For pension providers there will be administration tasks in updating and reviewing customer documentation and internal systems and processes, with changes coming in soon on 6 April 2023. Further ahead, the detail in the Finance Bill will be important for pension schemes; and

What are the potential implications of any future changes to the proposed reforms? As has become clear over recent years, the taxation of pensions is subject to change, which presents a challenge for those seeking to plan ahead for retirement over the longer term. Any potential steps in response to the reforms announced at the Spring Budget should be considered in light of the possibility of further future change (e.g. a future Government potentially re-introducing a lifetime allowance).

Other tax measures


Informal flexible working – following the Office of Tax Simplification’s report on cross-border and UK domestic hybrid and remote working, in Summer 2023 the Government will consult on informal and ad hoc flexible working in order to understand arrangements between employees and employers.

Boosting occupational health coverage – the Government will consult on options for incentivising increased take-up of occupational health provision through the tax system (which might potentially include expanding benefit-in-kind exemptions and a super deduction).

Tax-advantaged Share Incentive Plans (SIPs) and Save As You Earn (SAYE) plans – there will be a call for evidence on ‘all employee’ tax-advantaged SIP and SAYE employee share plans to identify opportunities for simplification and improvement.

Simplification of the Enterprise Management Incentives (EMI) share option regime – from 6 April 2023 EMI option agreements will no longer be required to state any restrictions that apply to the underlying shares, and the employer will not be required to declare that the option holder has made a working time declaration (though the working time requirement itself will remain). From 6 April 2024 the deadline for notifying the grant of an EMI option will be extended from 92 days following the date of grant to the 6 July following the end of the relevant tax year (existing EMI options exercised on or after 6 April 2023 will also benefit from these changes, but we await draft legislation to confirm what this means).



  • Charities – charities located outside of the UK will no longer qualify for UK charitable tax reliefs from April 2024.



  • Capital allowances – new first-year allowances for qualifying expenditure incurred on plant and machinery for three years from 1 April 2023. Full expensing available for main rate expenditure (other than cars or plant and machinery for leasing) with a 50 percent allowance for special rate expenditure. This follows the end of the super-deduction relief.
  • SME Research and Development (R&D) tax relief – additional R&D credits for loss making SMEs where R&D expenditure is at least 40 percent of total expenditure with effect from 1 April 2023.
  • Audio visual reliefs – legislation on the reform of audio visual tax reliefs with a view to changing to expenditure credits to be published for consultation.

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