I’ll defer to others for a summary of the overall budget that Jeremy Hunt announced today (e.g. MoneySavingExpert or the Guardian), but a few bullet points relevant to investing for Americans in the UK:
- Abolish the lifetime allowance (LTA) for pensions!
- Huge change for those with large pension balances – potentially major changes to the most tax-efficient approach to both accumulation and withdrawal, and estate planning (assuming the entire pension amount remains outside UK inheritance tax). All good changes!
- Update: important caveat that the Pension Commencement Lump Sum (aka the 25% tax free part) will be frozen at £268,275 (the current 25% of the LTA) moving forward. So the tax-free part of the pension is still capped, there’s just no penalty for exceeding a total value. That seems fair to me. Also, Monevator has a more detailed writeup on the pension changes.
- Increase the pension contribution limit from £40,000 to £60,000 per year
- Note this is now well above the US 401(k) limit, even including employer contributions. Those are $22,500 for employee, total max of $61,000. This can potentially have ramifications when relying on the treaty to exclude UK pension contributions.
- Also increasing the money purchase allowance from £4k to £10k (this is the amount you’re allowed to contribute to a pension after taking a withdrawal). Potentially useful if you take a break from working, use pension money to fund it, but then want/need to go back to work.
- No change to ISA allowances.
- Didn’t expect any, and £20,000 per year is still very generous (compare to $6,500 for US IRAs). But incrementally being eaten away by inflation.
- LISAs getting less and less useful for a first home, with the £450k house price limit buying you less and less (especially in London and the Southeast)
I had hoped for some mention of the reforms to the KID/KIID requirements that prevent UK residents from buying US ETFs, but nothing I’ve seen unless it’s buried in the written details (I will look, when those become available). That consultation did close a couple weeks ago, no report yet. I will definitely write about that one when it comes out.
All in all, the pension allowance changes are the big news for personal investing – lots of other goodies in there for people in various situations (childcare may be particularly useful to those with young kids, for example). At least, no increase in taxes beyond the frozen thresholds, which remain frozen until 2028…
(this was written quickly, as the budget was announced – I’ll revise if later details change anything significantly)
2 thoughts on “Spring Budget 2023”
With regard to the timeline for any possible changes to the PRIIPS KID requirements, I noticed that this article attempts to estimate how long it might take:
“The FCA has not committed itself to a timeline. By way of estimate, a Policy Statement and final rules might be published in early 2024. We can assume that firms might be given 18 months to transition from current disclosures to implementing the new disclosures. On this indicative timeline, the Retail Disclosure Regime might take effect by late 2026.”
At which point we would then need to wait for platforms to consider offering US ETFs. Not only that, the article seems to think that funds would need to offer UCITS KIDs instead of PRIIPs KIDs, which seems to put us back to square one. Finally, I struggle to see why Vanguard (for example) would willingly offer cheaper US ETFs to UK citizens, as it would eat into their business of selling Irish-domiciled versions. I certainly hope I’m wrong.
That would be a depressing timeline, and I’m hoping with the bonfire of Brexit regulations that at least this one would move faster (the whole bonfire being a bad idea aside…). I do think that article is written more for the benefit of the firms that are producing the KID/KIIDs, not the brokerages that have to prohibit customers from buying products without them.
I could imagine a two-stage approach: Stage 1: repeal the requirements for brokerages to stop retail investors from buying products without a KID/KIID, so that we can then buy US ETFs, etc., probably with a requirement that there be some kind of disclosure (e.g. “as long as the product meets the disclosure requirements of the EU, US, or other acceptable markets, it’s allowed.” But allow the fund managers to continue using the KID/KIID format to meet that requirement. Stage 2: Implement the new UK disclosure regime, transitioning the UK fund managers (and possibly brokerages) to the new regime.
Stage 1 would be all I really care about!
I see your point about Vanguard UK not offering US ETFs, since they already offer their Irish ones, and Vanguard aims to be a limited-choice brokerage (limited to what are currently about the choices on offer, as long as you’re not a US taxpayer). I can also see Vanguard wanting to do what is best for their customers, whether they think that’s lower fees (hopefully) or simpler offerings/less choice. But since Vanguard UK doesn’t support US customers anyway, it’s kind of a moot point for us.
I’d find it very surprising if some other brokerages didn’t support US ETFs as soon as they’re allowed to, including the main ones for US citizens in the UK. Interactive Brokers almost certainly, Hargreaves Lansdown and AJ Bell would seem likely, especially if it means they get to charge more high currency conversion fees!