Planning & protection
Callum Tyrrell
While the 2025 Budget packed less of a punch than many had feared, it still brought in some important changes.
Subtle adjustments to tax thresholds, allowances and rules can still have a meaningful impact — and without proper planning, they can quietly erode your financial position.
Here we look at some of the key changes that will take effect from the start of the 2026/27 tax year and what they may mean for you.
One of the biggest measures confirmed in the Budget is that personal income tax thresholds will remain frozen at their current levels until at least April 2031.
For England, Wales and Northern Ireland this is as follows:
| Band name | Taxable income threshold | Tax rate |
| Personal allowance | £12,570 | 0% |
| Basic Rate | £12,571 to £50,269 | 20% |
| Higher Rate | £50,270 to £125,139 | 40% |
| Additional Rate | £125,140 and above | 45% |
The Scottish Government sets its own rates and thresholds which are currently as follows:
| Band name | Taxable income threshold | Tax rate |
| Personal allowance | £12,570 | 0% |
| Starter Rate | £12,571 to £15,397 | 19% |
| Scottish Basic Rate | £15,398 to £27,491 | 20% |
| Intermediate Rate | £27,492 to £43,662 | 21% |
| Higher Rate | £43,663 to £75,000 | 42% |
| Advanced Rate | £75,001 to £125,140 | 45% |
| Top Rate | Over £125,140 | 48% |
In the UK outside Scotland, this freeze effectively increases tax revenues over time without changing headline rates.
As earnings rise with inflation, more taxpayers will be pulled into paying tax and into higher bands – a phenomenon known as ‘fiscal drag’.
Even without a direct increase in tax rates, many of us can expect:
This “stealth tax” effect is one of the most significant long-term revenue raisers in the Budget.
In addition to the threshold freeze, the Government has confirmed changes to tax rates on certain types of passive income:
The tax on interest and property income is due to rise by two percentage points across bands:
For those with investments or planning disposals:
This change effectively narrows the gap between CGT and income tax, particularly for entrepreneurs and business owners.
The Budget did not change the headline pension tax allowances or the lifetime limit, but there are important developments.
From 6 April 2029, the National Insurance relief on salary-sacrifice pension contributions will be capped at £2,000 per employee each year; above that level contributions will attract NICs.
This affects higher earners and those making larger salary sacrifice pension contributions.
It makes reviewing pension funding strategies all the more important in the coming years.
While the nil-rate bands and residence nil-rate band remain at their current levels until at least April 2031, there are ongoing reforms to reliefs.
Agricultural and Business Property Reliefs are being revised and will include caps on relief eligibility.
The 2024 Budget announced that defined contribution pension funds will from part of your estate for Inheritance Tax from April 2027 — something to monitor closely in your estate planning discussions.
Given the above changes, it’s worth considering the following proactive steps before the 2026/27 tax year begins:
With thresholds frozen, small income increases can have a larger tax impact.
Assess whether opportunities exist to time income or gains more tax-efficiently.
Utilise ISAs and pension allowances to shelter income and growth from rising effective tax burdens.
Consider whether holding dividends and interest-bearing assets in tax-efficient structures could reduce exposure to the higher passive tax rates.
With reliefs and nil-rate bands frozen and evolving, earlier planning can help mitigate future tax liabilities.
While the headline tax rates didn’t see the dramatic overhaul some anticipated, the Autumn 2025 Budget delivered significant changes that will affect many taxpayers.
The prolonged freeze on income tax thresholds, increased taxes on passive income, and tighter pension relief mechanics mean that careful planning is more valuable than ever.
We’re here to help you navigate these changes. For tailored advice on how the 2026/27 tax changes affect your personal finances, speak to one of our advisers today.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.
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The key changes include a continued freeze on income tax thresholds, higher dividend tax rates from April 2026, increased tax on savings and property income from April 2027, higher Capital Gains Tax on certain business disposals, and upcoming restrictions on National Insurance relief for pension salary sacrifice.
Fiscal drag occurs when tax thresholds remain frozen while wages rise with inflation.
As a result, more people pay income tax or move into higher tax bands, reducing take-home pay even though tax rates have not increased.
Yes. Even modest pay rises can push more of your income into higher tax bands.
Over time, this can significantly increase the amount of tax you pay without any change to headline tax rates.
From 6 April 2026:
These increases apply to dividends held outside tax-efficient wrappers such as ISAs and pensions.
From April 2027, tax on savings interest and property income will increase by two percentage points across all income tax bands.
This means more savers and landlords may see higher tax bills, particularly with thresholds frozen.
No. Income and gains within ISAs remain free from income tax and Capital Gains Tax.
With rising taxes on dividends, interest and capital gains, ISAs become even more valuable as a tax-efficient wrapper.
However, it is important to note that the 2025 Budget did change the amount that people can put in a cash ISA.
From April 2027, the cash ISA limit for under-65s drops from £20,000 per tax year to £12,000 per tax year.
The £20,000 limit for stocks and shares ISAs remains unchanged, as does the £20,000 cash ISA limit for those aged 65 and over.
From 6 April 2026, the lower Capital Gains Tax rate for Business Asset Disposal Relief and Investors’ Relief will increase to 18%.
Consequently, this reduces the tax advantage for entrepreneurs and business owners when selling qualifying assets.
While pension allowances remain unchanged, from April 2029 National Insurance relief on salary sacrifice pension contributions will be capped at £2,000 per employee per year.
Contributions above this level will attract NICs, affecting higher earners.
Inheritance Tax nil-rate bands remain frozen until at least April 2031.
However, Business Property Relief and Agricultural Property Relief are being reformed with new caps, and from April 2027 defined contribution pension funds will form part of your estate for IHT purposes.
Key steps include reviewing your income structure, maximising pension and ISA allowances, planning dividend and interest income more carefully, and reviewing estate and succession plans well ahead of time.
Given the cumulative impact of frozen thresholds, higher passive income taxes and pension changes, tailored financial advice can help reduce tax exposure and protect long-term wealth.
As a result. early planning is particularly important.
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