Five essential things to know about your finances as we start 2023
As 2023 gets under way, read five essential things to know about your finances in the new year, plus how we can help you weather any changes.
Now that 2022 is behind us, you might be reflecting on how the last year has affected you – both in positive and challenging ways.
You might have enjoyed the opportunity to travel uninhibited and return to your regular working schedule after the pandemic measures were eased, but could also be experiencing financial worries as the cost of living crisis, along with market volatility, has taken hold.
Indeed, rising interest rates and inflation have proved concerning for many savers, homeowners, investors, business owners, and employees. What’s more, Ofgem’s rising energy price cap has been challenging for people up and down the country, putting pressure on many people’s household expenditure throughout the year.
Whatever your position, there are some significant financial shifts set to occur in 2023. The storm may not be over yet, but there could be light at the end of the tunnel as we push through these tumultuous times.
While nothing is certain, here are five essential things to know about your finances as we head into 2023.
1. The UK is likely to remain in a recession throughout the start of 2023
One of the biggest financial headlines of 2022 has been the rate of inflation. In the year to November 2022, the Office for National Statistics (ONS) reports inflation reached 10.7% – a 40-year high – exemplifying the steep rise in the price of everyday goods and services.
Plus, the Bank of England’s (BoE) base rate has been hiked nine times since December 2021, reaching 3.5% in December 2022.
Unfortunately, it seems the UK’s economic challenges are not over yet. A report from Ernst & Young claims that, following the 0.3% GDP contraction forecast in Q3, the UK economy is set to shrink 0.2% in Q4 2022. Subsequently, the report claims the economy will contract a further 0.2% in Q1 2022, and another 0.2% in Q2.
So, the UK economy could remain in decline throughout next year, although of course, this is never certain. With real incomes being squeezed by inflation and high interest rates, there could be difficult times ahead.
However, it is important to stay calm – once inflationary pressure eases, recessionary conditions may follow.
Plus, a recession may not immediately affect your personal finances. Speak with your Kellands financial planner if you’re concerned about the impact a recession might have.
2. Some unearned income allowances are set to decrease or freeze
Following Jeremy Hunt’s autumn statement, you might be wondering which elements of your finances will be affected by his announcements.
One key aspect set to change is that of your unearned income. This is usually defined as income that does not come from a pension, employment, or profits from a business – including dividend earnings, capital gains, and inheritance.
In his statement, Hunt announced he will reduce the Capital Gains Tax (CGT) annual exempt amount from £12,300 a year to just £6,000 in April 2023, and again to £3,000 in April 2024.
In a similar vein, the Dividend Allowance will reduce from £2,000 to £1,000 in the 2023/24 tax year, and again to £500 the following year.
What’s more, the Inheritance Tax (IHT) “nil-rate band” and “residence nil-rate band”, standing at £325,000 and £175,000 respectively, were already frozen until 2026 by former chancellor Rishi Sunak. In the autumn statement, Hunt extended the freeze until 2028.
So, you could pay more tax on your unearned income from April 2023 onwards. To make the most of your current allowances before they fall, contact your Kellands financial planner today.
3. Business owners could pay higher Corporation Tax from April 2023
In March 2021, it was announced that Corporation Tax will be levied at an additional 6% from April 2023, bringing its rate to 25%.
This applies to businesses with profits of more than £250,000. If your business profits are less than £50,000, the rate will remain at 19%. The rate of Corporation Tax will be tapered for companies profiting between these margins.
If you are a business owner, this increase may significantly increase your annual tax bill from April onwards.
To prepare for this change, it could be helpful to review your company’s expenses with your Kellands financial planner and adjust where possible. We can help.
4. The State Pension “triple lock” will go ahead, giving retirees a welcome boost
In more positive news, in his autumn statement, the chancellor confirmed that the State Pension “triple lock” will be reinstated in 2023, after longstanding uncertainty around the measure sowed doubt in the minds of some individuals throughout this year.
Under the triple lock, the State Pension will increase year-on-year in line with inflation. So, pensioners can expect an increase of more than 10% to their State Pension payments from April 2023.
For someone receiving the full new State Pension, this move represents an increase of more than £900 a year.
Plus, Pension Credit is set to rise by 10.1% in April 2023. Overall, this is great news for retirees, many of who will receive a boost to their finances next year.
While the State Pension may not make up a significant portion of your retirement income, every little helps.
These additional funds could contribute to everyday expenditure, or be used to help the next generation get ahead after a tough few years.
5. Having a plan is essential
Although there may be some challenges ahead, it is important not to panic. No matter what happens in the UK economy in 2023, we are here to help your wealth thrive despite volatile conditions.
Creating a bespoke financial strategy with your Kellands financial planner means you can prepare for any rocky terrain you encounter next year, and may help put your money in a prosperous position for potential growth.
If you need us, we’re here – in 2022, 2023, and beyond.
Get in touch
To ensure you are prepared for the changes 2023 will bring to your wealth, email us at hale@kelland.co.uk, or call 0161 929 8838.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.