Autumn Budget 2026

A further increase to savings and property income tax rates of 2% was announced.  This is expected to increase receipts by an average of £1 billion per year from 2028/29 tax year.   

No further extension was made to the frozen income tax thresholds or personal allowance, which remain at their current levels until April 2031. Other income tax rates, including dividends, have not been changed. 

There will be no further change to the rates of tax on dividends. The ordinary and upper rates increased by 2% to 10.75% and 35.75% respectively in April 2026, with no change to additional rate.  The dividend nil rate remains at £500 per individual.

Income tax rates and thresholds are a devolved matter in Scotland so the thresholds and rates differ. Wales have devolved powers in respect of tax rates only on non-savings and non-dividend income but have yet to use these powers.

Class 1 NICs (employees and self employed) and class 1A NIC (employers) limits are being maintained at the April 2026 levels until April 2031. 

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2026 CPI rate of 3.5% from 2027-28. The LEL will be £6,916 per annum (£133 per week) and the SPT will be £7,355 per annum.

For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs rates by September CPI of 3.5% in 2027-28. The main Class 2 rate will be £3.80 per week, and the Class 3 rate will be £19.05 per week.  The government is currently considering voluntary NICs to ensure the system is fair and fit for purpose.

The government have announced that an further 2% will be added to the tax rates on savings income from April 2027. This is in addition to the 2% increase announced in the Autumn Budget 2025.  This means that the ‘savings’ basic rate will increase from 20% to 24%, higher rate from 40% to 44%, and additional rate from 45% to 49%.

The starting rate for savings will be maintained at its current level of £5,000 until April 2031. The Personal Savings Allowance will also be kept at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers don't benefit from the PSA.

There has been no further change to the rates of tax on dividends since the increase to ordinary and upper rates in April 2026.

What does it mean for the planner? 

Those with large cash balances may want to consider investing that cash within an offshore bond wrapper where the interest will roll up free of tax. If the offshore bond policyholder can realise chargeable gains in the future within unused Personal Allowance, Starting Rate for Savings and Personal Savings Allowance then they can also achieve a tax free exit.

We’ll look at how this rate increase will affect investment bond policyholders in more detail in our Bonds Matters section.

From 6 April 2027, the Income Tax trading allowance will increase from £1,000 to £3,000, alongside an increase in the Self Assessment reporting threshold for trading income to £3,000. The measure is intended to support small-scale entrepreneurship and remove some individuals with modest trading or miscellaneous income from the need to calculate taxable profits or file a Self Assessment return in respect of that income.  It aligns the actual tax exempt allowance witht he reporting threshold that was previoulsy announced to increase to £3,000

There was no mention of changes to the property allowance.

The government will uprate the Married Couple’s Allowance and the Blind Person’s Allowance by the September 2026 CPI rate of 3.5%. This will be legislated for and take effect from 6 April 2027.

What does this mean for the planner?

The maximum amount of Married Couple’s Allowance will increase from £11,700 (2026-27) to £12,110 on 6 April 2027.

The minimum amount of Married Couple’s Allowance will increase from £4,530 (2026-27) to £4,690 on 6 April 2027. 

The income limit for Married Couple’s Allowance will be £40,600 for the 2027-28 tax year.  The allowance is reduced by £1 for every £2 of income over this limit.

The Blind Person’s Allowance will increase from £3,250 (2026-27) to £3,370 on 6 April 2027.

In the Budget 2025 the government created a separate category for property income with effect from April 2027. This was legislated for in Finance Bill 2025-26.  
 

What was announced?
 

The rates originally announced will now be increasing by a further 2%.

This means that the tax rates for property income are as follows: 

• Basic rate 24% 
• Higher rate 44% 
• Additional rate 49%

The separate rates of tax for property income will apply to England, Wales and Northern Ireland. The devolved Scottish and Welsh governments have been provided with the ability to set property income rates in line with their current Income Tax powers in their fiscal frameworks, however, no changes have been made yet. 

The new rates will take effect from 6 April 2027.  

Property income is any income from letting land and buildings.

Financial planners may have clients who will be impacted who may require additional advice.

There are a number of allowances and reliefs in addition to the Personal Allowance which help reduce income tax on this kind of income. No changes to these have been announced:

• Gross property income of less than £1,000 does not need to be reported to HMRC and is tax free.
• If a landlord has annual gross property income of more than £1,000 they can benefit from either using the tax-free £1,000 property allowance or deducting relevant expenses.
• The Rent a Room Scheme lets individuals earn up to a threshold of £7,500 per year tax free from letting out furnished accommodation in their home (£3,750 for joint lettings).
• Finance cost relief (FCR) provides unincorporated landlords income tax relief at the basic rate on their mortgage interest costs. Finance cost relief will be provided at the separate property basic rate (24%).
• Carried forward property losses must still be offset against property income 
   

This change may result in property investors selling up.  This combined with the remaining landlords seeing reductions in returns, makes it more likely that the increase would be passed on to renters, making it much more expensive to rent. 

In addition to the above points, ensuring the income is received as tax efficiently as possible is where a financial adviser can help. For example, consider transferring part or full ownership to a lower tax paying spouse or making a pension contribution to mitigate the tax liability. However, the changes may put some people off using property in general and financial planners can help with different investment strategies.

The Cash ISA allowance will be remaining at £20,000.

The planned reduction to £12,000 for under 65s from 6th April 2027 will not be happening.

There are also indicators that other measures such as taxing interest earned on cash in a Stocks and Shares ISA and transfers into a Cash ISA for under 65s have been scrapped, but we are awaiting confirmation on this.

Government are going to explore with industry a new ISA incentive for people investing in a stocks and shares ISA for the first time. But there is no further detail.

What does it mean? 

The reversal gives financial planners full flexibility on how best to use the £20,000 ISA allowance. It will be interesting to see how the ISA incentive develops and whether that may entice people who have only ever held a cash ISA to take out a stocks and shares ISA.

With effect from midnight 29 October 2026, the withdrawal charge for purchasing a property above the LISA cap of £450,000 will be reduced to 20%.

Withdrawals from a LISA to purchase a property that exceeds the cap will result in an individual receiving back the money they put in (not accounting for investment performance). Effectively, they lose out on the bonus.

Crucially, unauthorised withdrawals will remain subject to a 25% withdrawal charge, which can leave the saver with less than originally contributed.

In summary, LISAs continue to be useful and the reduction of the penalty from 25% to 20% for an eligible property purchase means that individuals who are unsure on whether they will spend more than £450,000 on their first home might now be tempted to open a LISA.

A First Time Buyer ISA will be introduced from April 2029 and this will replace the LISA for new savers.

The product will allow contributions of up to £4,000 per year.

It will provide a 25% Government bonus, subject to an overall bonus maximum of £20,000, which will be calculated on the account’s final account balance and paid when funds are withdrawn for an eligible home purchase.

The property price cap will be £450,000, which is aligned to the Lifetime ISA. 

Both an FTB ISA and LISA can be used to purchase the first property.  A help to buy ISA can be transferred into the product but a LISA cannot (as this would give double bonus).

The key difference between this proposed new product and a LISA is that the bonus will only be paid when an individual withdraws funds for an eligible first home purchase. Also, unlike the Lifetime ISA, the FTB ISA will have no exit penalty.

They have effectively simplified the LISA by moving the bonus to at purchase of home as opposed to at purchase of LISA.

Despite some of these benefits, the main issue with this new product is the cap of £450,000. For many people in certain parts of the country, this cap may make the product unappealing.  

Although not an ISA, Your First Home could in theory be used alongside a First Time Buyer ISA in the future.

Your First Home is a new Government scheme that will help first-time buyers purchase a new build home. Applications for this scheme will open in February 2027.

The scheme involves a government equity plan worth 20% of the purchase price, which is interest free for 5 years. From year 6, the interest rate will be 1.50% and it will then be 3% from year 7. 

Interest payments are also separate from the mortgage and do not reduce the amount of equity loan an individual will owe.

Eligibility for the scheme is restricted to household income totalling less than £110,000 (outside London) and £140,000 (within London). 

The scheme can also only be used to purchase new build homes from participating developers, and there are property price caps, which are linked to the price of modest homes in those areas.

For example, the property price cap in Reading is £375,000, whilst the property price cap in Middlesbrough is £220,000.

The new scheme reduces the initial deposit required to purchase a property to 2.5% of the purchase price, so will help those struggling to get onto the property ladder.

The government will change HMRC’s definition of terminal illness so that it is easier for terminally ill individuals to access their pension savings, and will allow overseas registered medical practitioners to provide the medical evidence. The change will be legislated in Finance Bill 2026-27.

Technically these payments are called Serious Ill Health Lump Sums (SIHLS) and further detail on these can be found here 

Further detail comes from the DWP announcement of 15 October 2026, as reported by the press, rather than from the Budget text itself. HMRC’s Pensions Tax Manual currently requires written evidence from a registered medical practitioner that the member is expected to live for less than one year. The test will become whether death can reasonably be expected within 12 months, which brings pension tax rules closer to the DWP’s end-of-life definition. 

There may even be a widening on who can confirm this as presently this is limited to registered medical practitioners, if this is brought into line with the process for end of life benefits where a senior specialist nurse (such as a clinical nurse specialist, advanced nurse practitioner) can confirm the reasonable life expectancy.  

The government has also said it will engage with pension providers on how terminal illness lump sum payments work in practice and whether further changes are needed. Press reports expect the changes to take effect in the spring, but no commencement date appears in the Budget wording.

More clients with a terminal diagnosis may be able to take a serious ill-health lump sum, including clients who may live longer than a year but whose death can reasonably be expected within 12 months. Acceptance of overseas medical evidence should help clients living or treated abroad. Advisers should still check each scheme’s own rules, because schemes are not obliged to pay a serious ill-health lump sum and requirements vary between providers.

The tax treatment is not stated to change. Ministers described the current position in the Lords in June 2026: the lump sum is tax-free below age 75, up to £1.073 million, and taxed as income after that. Advisers should compare it with other options, including death-benefit nomination, IHT and means-tested benefit interactions, and the loss of future tax-advantaged growth. 

The Budget removes the two-year rule for the taxation of pension and lump-sum death benefits for payments from 28 October 2026.

Removing the rule should reduce the risk that members face a less favourable income-tax outcome solely because the scheme does not complete the process within two years. This may be relevant where identifying beneficiaries, probate, disputes, illiquid investments, investigations or scheme administration delays payment.

The measure does not make all pension death benefits tax-free, these will still be taxable for the member if they take this over the age of 75.

 Advisers still need to establish the member’s age at death, whether benefits are paid as income or lump sum, the beneficiary’s marginal rate, the lump-sum and death-benefit allowance position (if the member is under the age of 75), the type of pension arrangement and the interaction with pension and IHT rules from April 2027.

The government will change how tax is assessed and collected where a deceased member's lump sum and death benefit allowance has been exceeded, in order to give individual beneficiaries greater certainty. The change will be legislated in Finance Bill 2026-27. The Budget wording itself gives no start date.

Further detail comes from HMRC’s tax information and impact note for this measure. Where a pension lump sum death benefit is paid above the deceased member’s available lump sum and death benefit allowance (LSDBA), the excess will no longer be treated as pension income of the recipient. Instead, HMRC will calculate and collect a separate Income Tax charge at the recipient’s marginal rate. The recipient will still pay tax at a rate that reflects their wider income, but the excess lump sum will not be added to that income.

The stated aim is to provide a simpler and more certain tax treatment. Taxing the excess separately avoids reopening the recipient’s wider tax and income-related benefits position, potentially several years after the payment was received, and gives HMRC a practical standalone process for assessing and collecting the tax due. The policy of taxing lump sum death benefits above the available allowance at the recipient’s marginal rate is preserved.

Two further technical points are included. First, consequential changes will be made to Income Tax rules to preserve Inheritance Tax (IHT) relief where the same benefit is also subject to an IHT charge, which is relevant given the move of unused pensions into estates from April 2027. Second, technical amendments will be made to the LSDBA regime so that the calculation of certain disregards operates as intended. This is expected to affect a small number of individuals with fixed protection, individual protection or primary protection. HMRC expects the measure to affect only a small number of beneficiaries overall. 

This sits alongside the removal of the two-year rule for death benefits. Beneficiaries of large pension lump sums may be exposed to a tax charge if the LSDBA is exceeded, or the member was over the age of 75. If the death benefits is paid as a lump sum and is taxable, this is currently taxed at the marginal rates of the recipient (or at 45% if this is paid to a non individual). 

Current process for assessing and collecting that tax can leave them uncertain about what they owe and when. The reform is aimed at that uncertainty. HMRC’s note indicates that the excess will be taxed through a separate charge at the recipient’s marginal rate rather than being added to their income, but who will account for the tax, how it will be reported and when it will fall due remains to be confirmed in the draft legislation.

The separate charge should mean the excess does not distort the beneficiary’s other income for that tax year, and HMRC says it will not reopen their wider tax and income-related benefits position after the year has ended. Beneficiaries will still pay tax at the rate that reflects their wider income, so advisers should continue to model the likely marginal rate, and the interaction with any IHT charge on the same benefit, before benefits are paid.

In the meantime, advisers should check how much of the member’s allowance remains for estates and beneficiaries with large lump sums, warn beneficiaries that tax may arise at their own marginal rate, and avoid giving firm timing or collection assumptions. 

The government will make changes to enable the consolidation of Defined Contribution (DC) schemes and the introduction of the Guided Retirement framework and Retirement-only Collective Defined Contribution (RCDC) pension schemes. These changes will be introduced through Finance Bill 2027-28. The Budget wording gives no commencement dates and very little technical detail.

Two member-facing changes are specifically mentioned. First, the government will expand the circumstances in which a member may keep certain protections following a transfer. Second, members will be allowed to transfer from an RCDC pension to a drawdown arrangement within a set timeframe. 

By way of background, Guided Retirement comes from the Pension Schemes Act 2026, which requires trustees of in-scope DC schemes to offer default retirement solutions, with the FCA introducing equivalent rules for contract-based arrangements. Members keep the existing Pension Freedoms options. 

RCDC is a collective arrangement open only to pensioner members. It aims to pay a trustee-managed income for life that is adjusted each year, with increases targeted rather than guaranteed. These are only payable from an RDRC as a scheme pension.  

RCDC and the Guided Retirement defaults are additional options, not replacements for annuities, flexi-access drawdown or other existing ways of taking benefits. Suitability work at retirement will therefore need to cover more choices, not fewer.

Protections on transfer: clients who hold valuable protected features, such as protected tax-free cash or a protected pension age, can lose them on transfer, so any move to a consolidated scheme or a default arrangement needs careful checking. Expanding the circumstances in which protections can be kept could make consolidation easier for some clients. Advisers should keep clear records of the protections each client holds and should not assume they will survive a transfer, including a transfer into RCDC, until the detail is confirmed.

RCDC to drawdown: because RCDC pays a collective income without guaranteed increases, a route back into drawdown within a set timeframe could act as a safeguard for clients who change their mind or whose circumstances change. 

The length of the window, how the transfer value will be set, and whether any tax or charges apply are all unconfirmed. Advisers should be ready to compare RCDC with annuities and drawdown, covering income certainty, flexibility, death benefits and the client’s attitude to risk. They should also avoid presenting the exit route as a guarantee until the rules are known.

DC consolidation: the Budget gives no detail, but clients with several small or legacy DC pots may be offered consolidation routes in future. Before any transfer, advisers should still check for guarantees, safeguarded benefits, protected tax-free cash and exit charges.

Most unused pension funds and pension death benefits will be brought within the value of a person's estate for inheritance tax (IHT) purposes from 6 April 2027, as legislated for in Finance Act 2026. In an email of 28 October 2026, HMRC's IHT on pensions policy team announced two technical amendments to that legislation, to be made in Finance Bill 2026-27.

The first change will allow a prospective personal representative to direct pension scheme administrators to pay the IHT due directly to HMRC when certain conditions are met. The existing rules only allowed actual personal reps to serve a payment notice.  This will mirror the legislated for process and will not alter how scheme administrators make the payments to HMRC. 

The second change updates the IHT charitable giving condition to create a new, separate component for pension funds. Those administering an estate will be able to decide whether notional pension property is included in the "general" component of the estate or treated as a separate component. This applies when testing whether the component/estate qualifies for the reduced 36% rate of IHT for charitable giving. It supersedes the position on charitable giving in Technical Note 1, which HMRC says will be updated in due course.

Both changes take effect from 6 April 2027. There will also be consequential changes to the Registered Pension Schemes (Provision of Information) regulations relating to prospective personal representative payment notices, plus minor amendments. HMRC intends to publish further information in its next Technical Note later this year. 

Allowing a prospective personal representative to direct payment of the IHT due should make it easier to settle the tax on pension benefits from the pension itself. The conditions that must be met have not yet been published, so we will need to see what these are.

The charitable giving change may affect clients who plan to leave part of their estate to charity. Whether an estate benefits from the 36% rate will depend on the make-up of the estate. It's important to remember though that personal representatives can choose to merge some or all of the components of the estate. This could prove beneficial when charitable gifting is involved. Advisers should also avoid relying on the Technical Note 1 position and review charitable legacy planning once the legislation and updated HMRC guidance are available. 

The government is increasing all the rates of income tax applied to property and savings income by 2 percentage points. From 2027 to 2028, the rates applicable to these types of income will be 24% for basic rate taxpayers, 44% for higher rate, 49% where it sits in additional rate. This will be legislated for in Finance Bill 2026-27 and take effect from 6 April 2027.

Its already been legislated for that savings and property income received by trustees was going to suffer the same 2% increase from April 2027 announced in last year’s budget. The announcement in the Autumn Budget 2026 will add a further 2% tax increase to these types of income. Financial planners advising trustees should already have been considering the impact of the increased tax rates as it will differ depending on the type of trust and the assets held. The changes announced will simply increase the tax on beneficiaries and add to the issue faced by discretionary trusts.   

The increased rates of tax on savings and property income will have a direct impact on beneficiaries of bare trusts and income beneficiaries of interest in possession trusts (where income has been mandated to them) as they are assessed on the income in the tax year it arises. They will suffer the increased rates in the same way as an individual would with the same type of income. 

Where trustees of an interest in possession trust have not mandated the income to the beneficiary, the trustees will pay the increased rate of 24% on savings and property income. The income is still assessed on the beneficiary as it arises but comes with a tax credit to take account of tax paid by the trustees. The income retains its character so the beneficiary can make use of their allowances and reclaim tax where appropriate or pay more if their liability is higher. So, although there is more administration involved the impact is the same as with an individual. 

So far so good however, trustees of discretionary trusts will need to give more consideration to the tax changes.   

For discretionary trusts, from April 2027, dividend income will continue to be taxed at 39.35%. The problem lies in the fact that savings income from cash, fixed interest securities and interest bearing OEICs will be taxed at 49%, as will property income.

It was confirmed after the previous increase announcement that the tax credit accompanying income distributions will remain at 45%. This means a trust with only savings and/or rental income could see some of the tax paid wasted where a beneficiary is a non-taxpayer and unable to reclaim the full 49%. 

Trustees holding a mixture of dividend producing investments, deposits and property assets may need to pay closer attention to the type of income being generated. Dividend income may become increasingly valuable because it creates the tax pool deficit that the additional tax on savings and property income can be used to fill.

Investment bonds held within discretionary trusts may be less affected than trusts holding deposits or property. Chargeable event gains while the settlor is alive and UK resident fall on the settlor and often a bond will be assigned to a beneficiary before encashment. As a result, discretionary trusts often avoid the trustee rate however, where a gain is assessed on the trustees, the increased rate is significant because unlike trust income, the additional tax can't be recovered through later distributions. 

The government announced they will amend the inheritance tax rules to clarify when liabilities relating to trust property may reduce the value of assets for inheritance tax purposes, align the treatment of liabilities affecting trust property with personal liabilities, and strengthen anti-avoidance provisions. This will take effect for deaths and other chargeable events occurring on or after 28 October 2026. This will be introduced through Finance Bill 2026-27. 

The change targets arrangements which use trustee debts to obtain an unintended tax advantage. In particular, it addresses situations where trust property forms part of a beneficiary’s taxable estate and the trustees’ debt is connected with value originating from that beneficiary. 

This is not a blanket restriction on genuine trust borrowing. However, planners with clients using arrangements that rely on trustee debts to reduce their taxable estate should seek specialist advice. The effective date relates to the taxable event, so existing arrangements are not automatically protected. 

The draft legislation appears to be closing a loophole that has been exploited by some tax avoidance arrangements in the past. 

The government is making changes to capital gains legislation to provide an administrative easement to the ‘exit charge’ that otherwise applies when a trust ceases to be resident in the United Kingdom. This will make it easier for globally mobile talent to relocate to the UK more quickly. The government will introduce legislation in Finance Bill 2026-27 which will have effect in relation to exit charges on or after 28 October 2026

This change allows a trust to become UK resident without triggering the Capital Gains Tax (CGT) ‘exit charge’, which would normally apply when a trust stops being UK resident. The relief is available where a trust becomes UK resident because of one or more trustees moving to the UK, and it ceases to be UK resident later that year or in the following year.

This is unlikely to have much impact for most financial planners in the UK as it is aimed at non-UK resident trusts who become UK resident for a short period of time due to one of the trustees spending a limited time in the UK. 

The lifetime limit for gains eligible for Business Asset Disposal Relief will fall from £1 million to £500,000 from 6 April 2027. The new lifetime limit will apply to disposals made from 6 April 2027 with legislation to be introduced in Finance Bill 2026-27. The government has said that three-quarters of BADR claimants are still expected to receive relief on their entire qualifying gain. 

The benefits of Business Asset Disposal Relief (previously Entrepreneurs Relief) have been slashed in recent years. The limit was reduced from £10m to £1m in 2020 with rates increasing from 10% to 14% from April 2025 and then to 18% from April 2026. This new announcement halving the limit to £500,000 is more of the same.  This will result in additional CGT of up to £90,000 for some.

The main impact will be on those individuals approaching a sale with qualifying gains that breach the limit. They will need to ensure the sale is done and dusted before 6 April 2027 to avoid an increased tax bill. 

A disposal before 6 April 2027 might preserve access to the existing lifetime limit however, as with previous changes it is unlikely that the announcement in the budget will drive business owners to sell their business who weren’t already planning to. 

From a planner’s perspective, where more of the gain will be taxed at the normal CGT rate, advisers may need to revisit the amount available for retirement, pension funding before disposal, ISA funding, tax wrapper selection, protection needs and estate planning after sale.

The government will introduce a new Founders’ Relief, providing a 10% CGT rate on up to £10 million of lifetime gains for qualifying founders of high-growth, innovative companies from 6 April 2027. Following a technical consultation on the detailed design launched at Budget, the measure will be introduced through Finance Bill 2026-27 and will apply to disposals made on or after 6 April 2027.  

As with other reliefs that apply to business owners and shareholders, it’s good to have an awareness of new developments but the details are best left to the individual’s accountant. The relief could be considerably more valuable than BADR for an individual who meets the eventual qualifying conditions but there are strict rules that need to be met.

At a high level, the proposal outlined in the consultation states that the individual will need to have:

• held 25% of the company’s ordinary share capital 
• held the shares or securities for at least five years before their disposal; and 
• been UK resident for at least five continuous tax years before the disposal.  

The company will need to:

• be in scope of UK Corporation Tax 
• be a trading company, or the holding company of a trading group 
• continue the new trade it was established for when the founder's shares were issued with no major change in the nature of the trade. 
• have generated turnover of at least £10 million in the accounting period prior to disposal; and  
• have employed at least 15 qualifying full-time employees in the accounting period prior to disposal. 

The company will also have to meet certain benchmarks relating to specific time periods when it comes to demonstrating the success in terms of growth and innovation. 

The consultation seeks views on how the proposed individual, company and growth and innovation conditions will work in practice. It also covers administrative and compliance considerations. 

The government will issue responses to finalise the design. The consultation can be found here.

Founders’ Relief: technical consultation - GOV.UK

From 6 April 2027, the Income Tax rates applying to savings income will be:

• 24% savings basic rate
  
• 44% savings higher rate
  
• 49% savings additional rate 
   

These replace the 22%, 42% and 47% rates that had previously been announced for 2027/28. The increase therefore adds a further 2 percentage points across each savings rate. These rates are effective from April 2027.

This will not only affect savers with money in the bank, it affects those with chargeable event gains from insurance bonds, as these are taxed as savings income on the individual.  

This change has wider implications for investment bonds as it also extends to the underlying rate of corporation tax paid by onshore bond providers, the associated tax credit and rate of tax treated as paid in top slicing calculations.  These were linked to the basic rate of tax but the Finance Act 2026 legislated that these would now link to the ‘savings’ basic rate.  Therefore any changes to the savings basic rate will follow through.

While the rise in the savings basic rate to 24% may increase the tax drag on the internal fund, the effective tax rate of a fund will depend on the nature of its underlying investment returns.

The returns from the underlying assets depend largely on whether they are dividends, other income such as interest, or capital gains.  Dividends received are exempt, whilst other income and capital gains are subject to a special rate of corporation tax, now linked to the savings basic rate of tax.  Our understanding is that non-dividend income within a UK bond will therefore be taxed at the increased rate of 24% from April 2027.  

The associated tax credit will reflect this and become 24% on chargeable gains. 

Currently at Steps 2 & 4 of the top slicing calculation, basic rate tax treated as paid is deducted whether you are calculating top slicing relief for an onshore or offshore bond.  From April 2027, it will be savings basic rate tax which is deducted, therefore, the rate of this will also be increasing to 24%. 

Top slicing relief is generally available where a taxpayer would be liable to tax at a lower rate if a chargeable event gain was not included in their income for the year. Even if the chargeable event gain does not move a taxpayer into a higher tax band, there may still be some top slicing relief available due to the effect of the personal savings allowance nil rate and the starting rate for savings. 

We have seen increased interest in insurance bond wrappers in the last few years, due to the changing tax landscape. With no change to dividend taxation since April 2026 and increases in the savings income rate from April 2027, will things change?

When deciding if unwrapped investments, such as collectives or wrapped investment bonds are more appropriate for a particular client, the planner needs to take into account the tax position of the investor, and the internal taxation of the investment.

Although internal tax drag increases for onshore bonds, basic rate taxpayers will have tax free dividends within a bond and the ‘savings’ basic rate tax credit to offset against the tax on any resultant gains.  With planning, the ‘savings’ basic rate tax credit on encashment and top slicing relief could eliminate the tax due on the gain in this scenario, meaning no further tax to pay. 

For higher and additional rate taxpayers, the differential between basic and higher or additional rate remains 20%, so the position for onshore bonds is fairly neutral, and still outweighs the direct taxation of dividends and capital gains for unwrapped investments. 

Offshore bond gains do not have a corresponding tax credit, so may face the higher savings rates on taxable gains. When you consider the tax on encashment, the same planning principles apply, the benefit of gross roll up should even the tax liability out and it is still advantageous to wait until they drop a tax band to encash or to assign to lower rate taxpayers.

Planners should still revisit the timing of chargeable events and top slicing calculations, 

Should the change be seen as a reason to surrender, rebase or replace existing bonds?

It may be worth bringing forward surrenders to before April 2027 if the planning was simply to encash next year.  This will allow policyholders to take advantage of the lower rates.   

If the planning was to reinvest in a new bond, then onshore there does not seem to be much benefit as the basic rate tax credit will increase and the differential for those in excess of basic rate there is still a 20% differential.  Offshore, there may be merit in rebasing a bond to wash through the gain at 4% less tax.  The costs of doing so should obviously be weighed to ensure any costs of the change do not self-defeat the tax savings.

A new Pension Tax Allowance from 6th April 2027 for low-income pensioners who are over State Pension age, or reach State Pension age during the tax year.

It’s a targeted income tax reduction for individuals who have reached state pension age and have low levels of income.

For 2027/2028, the full State Pension will be £13,036.40, which is £466.40 higher than the £12,570 Personal Allowance. 

Without the introduction of the Pension Tax Allowance, low-income pensioners just in receipt of the State Pension would have been liable for income tax. It should be noted, however, that any type of income not just state pension income can benefit from the relief. 

Firstly, it is important to remember the State Pension does remain pension income for tax purposes.

For financial planners, their involvement on the Pension Tax Allowance will be heavily focused on the taper test, as clients will have many questions around this.

As a reminder, the Pension Tax Allowance is reduced by £1 for every £3 an individual’s total income exceeds the full State Pension (£13,037 – 2027/2028). 

And note, the taper is based on total income, so even if interest earned is covered by the Savings Allowances, the interest still counts as total income, so this could still result in the Pension Tax Allowance being tapered. 

Therefore, financial planners may want to consider placing these funds into an ISA, pension or perhaps an investment bond, as this could help preserve a low-income pensioner’s entitlement to the Pension Tax Allowance.

And lastly, please note the Pension Tax Allowance has been confirmed for tax years 27/28, 28/29 and 29/30. The policy is estimated to cost a total of £285 million for this period.

The Triple Lock formula is being revised from April 2030. The link to inflation (Consumer Price Index - CPI) and 2.50% is remaining, but the link to average earnings is being amended.

From April 2030, the link to average earnings will look at average earnings growth over a period of time, rather than looking at average earnings growth in a single year.

It means that the State Pension could rise more slowly, especially if average earnings growth is strong in a particular year, but weak in previous or subsequent years.

But advisers should reassure clients that their State Pension will at the very least, continue to maintain its value in line with inflation.