We were promised by the press that we would see the four horsemen of the tax apocalypse . Instead all we got was a slightly irritated pony.
Yes, the Budget was far milder than expected. Instead of meaningful reform, we got more tinkering at the edges and another chance missed to overhaul the tax system. There were also few real attempts to tackle spending. Given the government’s internal battles, this may have been the only outcome they could deliver..
It’s also worth noting what didn’t appear in the Budget. No changes to capital gains tax rates or allowances. No changes to inheritance tax, gifting rules, income tax rates, pension tax-free cash, pension tax relief or pension allowances. The Telegraph’s warnings on all of this turned out to be nothing more than politically motivated noise. Unfortunately, many people have made rash decisions though.
Markets took the Budget well. UK gilt yields fell as the revenue targets looked achievable and the overall package leaned slightly disinflationary. That said, nothing in this Budget came close to the impact of last year’s NI changes, and several of the more contentious measures were pushed into the future.
Below we outline the measures most relevant to clients, in the order they take effect, and highlight the planning steps worth considering.
Income tax/NI- The Big Freeze . Payslips unchanged but it will still hurt
What was announced? The government has decided to extend the freeze on the income tax and NI thresholds (in England and Wales) until April 2031. Other than for dividends, property and savings, tax rates for salaried/self employed or other income are unchanged.
The standard personal (tax free) allowance is £12,570 , then the basic rate 20% £12,571 to £50,270, 40% higher rate £50,271 to £125,140 and 45% additional rate over £125,140. If you earn more than £100,000 your personal allowances goes down by £1 for every £2 your income is above £100,000
This is effectively a stealth tax and for most will be the biggest tax hit. The freeze has seen many more millions of people paying rates of tax higher than five or six years ago. Salaries adjusted for inflation or promotions will push employees into higher and higher tax brackets.
What can we do about it? We have been here before as the tax thresholds have not increased since 2021. The best way by far to claim tax relief remains to contribute to your pension, either via your employer’s scheme (which you should be doing anyway automatically) or through a personal pension contribution.
Dividend tax rates up from April 2026
What was announced- An extra 2% will be added to the rates of tax on dividends. This will take place from April 2026. The basic rate will increase from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is not impacted and the dividend nil rate remains at £500 per individual.
What can we do about it? You should always invest tax efficiently using your annual tax allowances (ISAs, pensions) and look carefully at other wrappers such as offshore bonds. For small business owner/directors , taking salary up to the personal tax allowance then dividends after that still makes financial sense up to around £200,000 per annum despite the tax increase. There is still more left in your pocket than paying yourself as a salary (due to the NI savings). However if you can afford to, you should skip dividends and maximize employer pension contributions instead. Remember also – if your spouse is a director you can make use of their unused tax bands as well.
Savings and Property Income tax – From April 2027.
What was announced? The government has announced an extra 2% will be added to the tax rates on savings income and income from property. The basic rate will go from 20% to 22%, the higher rate from 40% to 42% and the additional rate from 45% to 47%.
What can we do about it? For those with significant savings sitting in cash or bonds this measure combined with the ISA measures below may incentivise more long term equity investing . This blog is not financial advice however and everybody’s risk profiles, goals and needs differ. For risk free tax efficient investing , it’s certainly worth looking at buying and holding to maturity low coupon short dated gilts as the gains on these are not subject to capital gains tax.
Governments have consistently legislated against landlords for the past ten years. This budget was no exception. Short of moving property portfolios to limited companies (which will trigger CGT and incur considerable annual expenses) it may be worth selling your Buy to let property and reinvesting more tax efficiently. You can read our views on property as an investment here
ISAS- Cash ISA Allowance reduced for under 65s -from April 2027
What was announced – The Cash ISA limit will be reduced from £20,000 to £12,000 for those under 65 from the next tax year. There will be no change to the Stocks and Shares ISA limit of £20,000 (out of which £12,000 can be allocated to cash if the investor wishes). The subscription limits will remain until the 5 April 2030. The Lifetime ISA will also be reviewed with a few to scrapping it and introducing another scheme to help first time buyers .
What can we do about it? We have always felt at Thera Wealth that Cash ISAS were a dreadful waste of the most valuable tax wrapper there is. Far better to use your ISAS for tax free growth and higher returns over the long term (if history is our guide). There are plenty of alternative tax efficient cash saving options to cash ISAS including premium bonds , and low coupon gilts. It would be interesting to see also how the government will legislate to stop people gaming the system by holding cash reserves in S&S ISAS or money market funds. Also we do not mourn the death of the Lifetime ISA.
The High Value Council Tax Surcharge- from 6th April 2028
What was announced- A new surcharge on high value properties will be introduced in April 2028 alongside existing Council Tax by local authorities. A public consultation on details relating to this will be held in early 2026 which includes a full set of reliefs and exemptions. Properties above the £2 million threshold will be placed into bands based on their property value:
| Threshold (£m) | Rate (£) |
| £2.0-2.5 | £2,500 |
| £2.5-3.5 | £3,500 |
| £3.5-5.0 | £5,000 |
| £5+ | £7,500 |
New valuations will be carried out by the Valuation Office Agency, reflecting each property’s value in 2026. Charges will increase in line with CPI inflation each year from 2029-30 onwards.
What can we do about it? In short not much, unless you want to sell and downsize. This is simply a Council Tax increase and will go some way to appease those who called for a “wealth tax”. The numbers however are lower than expected and capped (there was talk of a 0.5% annual levy on the value of the property). This will have an impact on house prices going forward and there will be some “price bunching” around the thresholds.
Salary Sacrifice for pension contributions- April 2029
What was announced. – Salary Sacrifice for pension contributions will be limited to £2000 from April 2029. Anything above this amount will be subject to both employee and employer National Insurance contributions. The table below shows the impact on employee’s pay packets a year, assuming the employee has agreed to exchange 6% of their notional salary for a pension contribution, with a 6% employer match (and that the employer does not share any of their National Insurance Savings)
Source: AJ Bell . Figures based on when the changes happen in 2029
What can we do about it? This change was widely expected.Thankfully it is still a long way off (and we note due to take place in an election year) and employers have a long lead time to work out how to re-position their employees pension savings. For employees, salary sacrifice still remains (even after the change) the best way to contribute to your pension but employers will be hurting a lot more, so may well consider scrapping the arrangement completely . Alternatively , they may keep the arrangement up to £40,000 salaries or less where the contribution is lower. Important to note that there are no changes to the usual tax reliefs, and employer contributions are still tax deductible.
Other relevant measures summarised in brief
The state pension – April 2026
Nobody dares limit the increase in the state pension or scrap the triple lock. The basic and new state pension will increase by 4.8% from next April to £24.30 per week or £12,547 annually (just shy of the personal tax allowance).
Venture Capital Trusts- April 2026
The front end rate of income tax relief for VCT investment will be cut from 30% to 20% from April 2026. These remain high risk, illiquid and high fee investments and are now even less attractive following the lower relief. EIS (although still very high risk) may be more appropriate in the right situation. Please speak to an adviser .
Estate planning- Agricultural and Business property relief- April 2026
The £1million allowance for the 100% rate of agricultural and business property relief will now be transferrable between spouses and civil partners. This is a welcome change.
IHT on pensions- administration- April 2027
Pensions will fall into the estate from April 2027 (this measure was announced last year). The key announcement was that personal representatives will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay Inheritance Tax due in certain circumstances. Personal representatives will be discharged from a liability for payment of Inheritance Tax on pensions discovered after they have received clearance from HMRC.
Well that’s all from us from another budget year, but if you would like to set up a chat about what all this means for you and your family’s specific situation and your financial and tax planning implications, please get in touch!
- The value of investments and any income from them can fall as well as rise. You may not get back the full amount invested.
- The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
- This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.