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.
The beginning of the year is a great time to start afresh – so why not try some New Year’s financial resolutions?
Each of the suggestions below could help you and your family to face the future with confidence – whatever may happen.
Taking action now could provide major benefits later down the line and provide valuable peace of mind in the meantime.
Whether you’re close to retirement or it’s decades away, it’s never a bad time to take a good look at where you stand when it comes to your pension.
If you have a workplace pension, look at how much you’re contributing and how that money is being invested.
While it’s tempting to think everything is sorted because you’re paying in every month, you may be surprised when you take a second look.
Are your pension investments performing well?
Is your pension fund being invested at the right risk level for you?
Could you afford to pay in a little more each month – and how could that help build your fund?
If you have paid into a number of different pension funds during your working life, take some time to track them down. The Government’s free pension tracing service can help with this.
Once you’ve got details of all your pension plans, you may wish to consolidate some or all of them into a single fund.
You need to think carefully about this – check our pension consolidation guide for more information – but consolidation can help cut fees and simplify pension management.
Talk to a financial adviser to get expert help on what could work best for you – and how to do it.
If you’re aged over 55 (or you turn 55 this year) then you can get access to up to 25% of your defined contribution pension as a tax-free lump sum.
This may be useful if you want to want to pay off your mortgage or have other debts you would like to settle.
However, you don’t have to take all the money in one lump and there are ways in which that tax-free cash can grow.
Check out our guide to pension lump sums to find out more.
As well as resolutions, people like making predictions at this time of year.
However, the reality is that most of us have no idea what could be around the corner.
Being prepared for what life could throw at you is a great way to start 2026.
Protection policies such as life insurance, critical illness insurance, income protection and mortgage protection can help take away financial worries in difficult and stressful circumstances.
Are your existing protection policies enough?
Check what cover you currently have in place and assess whether it’s enough for you and your family.
Then consider whether additional policies are needed to cover other eventualities – and enjoy greater peace of mind this year and other years to come.
Mortgages remain most people’s biggest financial consideration.
With interest rates starting to fall, the coming year is a good opportunity to take stock of where you are and whether you could get a better rate.
Talk to a mortgage adviser who will be able to survey the current market and provide expert insight into your next move.
As well as getting a better rate, you could find out ways to pay your mortgage off earlier.
One interesting section about November’s Budget was when the Chancellor talked about the power of investing.
Rachel Reeves pointed out that someone who had invested £1,000 a year in an average stocks and shares ISA every year since 1999 would be £50,000 better off today than if they’d put the same money into a cash ISA.
While it’s important to say that the value of investments can go down as well as up, the difference in the example above is startling.
This is one of the reasons why if you are looking for a long-term return on your money, consider looking into investments.
Talk to a financial adviser who will be able to help you choose investments which match your financial goals and attitude to risk.
If you already have investments, it’s a good idea to check on their progress.
Are they performing in accordance with your goals?
Does the risk level match your outlook?
Are there ways you could be making your money work harder?
Getting a good grip on your investment management could pay dividends not just this year but in years to come.
Whether you have a cash ISA, a stocks and shares ISA or a mixture of both, you should try to maximise your annual £20,000 tax-free allowance.
This will ensure that as much of your savings and investments as possible is free from tax.
The 2025/26 tax year ends on April 5 in 2026 so make this a red letter day as you cannot roll over any of your ISA allowance into the next tax year.
The November Budget reduced the amount that under-65s can pay into a cash ISA from £20,000 to £12,000 from April 2027.
Take action now if cash savings are a priority.
Thinking of the future often means thinking of your descendants.
The start of the year is a good time to assess how you’re preparing your children (or grandchildren) for their financial future.
Their retirement may seem a long way away, but starting a child’s pension is one of the very best gifts you can give – and it can literally last a lifetime.
On a shorter timescale, Junior ISAs are a great way to set your child or grandchild up for the start of their adult lives.
Like children’s pensions, Junior ISA contributions are tax-free and can be made by other relatives and friends.
If your children or grandchildren are grown up but still starting out when it comes to property, you might want to consider opening the ‘Bank of Mum and Dad’.
Helping family out with home loans, deposits or mortgages is becoming more commonplace as house prices continue to rise.
However, it is a good idea to talk to a financial adviser before embarking on assistance since it will have implications for you as well as your offspring.
No-one likes to contemplate the end of their life, but thinking about what will happen when you’re no longer around is a vital aspect of financial planning.
Estate planning is name given to the process that works out how you would like your assets to be managed and passed on after your death.
With inheritance tax affecting more and more families, it is a good idea to plan now to maximise how much you could pass on to your loved ones.
Things like making a will and getting Lasting Power of Attorney can give you great peace of mind now as well as making your family’s lives easier when you are no longer around, especially at a time of stress and grief.
Talking to a financial adviser can help start the estate planning process while you will also need professional legal advice on things like wills and lasting power of attorney.
If you’ve never taken professional financial advice before, the start of a New Year is a great time to consider it.
A financial adviser can help you clarify your financial goals, provide a plan to help you reach them, monitor and review progress and make changes in line with your circumstances.
In a recent survey, 91% of people who paid for financial advice said it was either helpful or very helpful in helping them manage their money.
If you already benefit from financial advice, maybe 2026 is the year you share that benefit by recommending friends or family consider talking to an expert.
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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.
Early retirement is something which may sound extremely attractive as you enjoy the Christmas holidays and make the most of time off from work.
But just how feasible is retiring early, how much money do you need and how can you best approach it?
Here we take a look at early retirement, examine the practicalities of giving up work and the options available to people looking to wind down and enjoy life without the 7am alarm call.
As people live longer and traditional final salary pensions become increasingly rare, achieving early retirement depends on building a strong financial foundation.
That involves boosting savings, investing with a long-term perspective, and planning for healthcare, inflation, and potential market fluctuations.
With a well-thought-out plan and regular reviews to stay on track, early retirement can shift from a distant dream to a reachable goal.
Before working out how much money you might need, it helps to define what a comfortable retirement looks like for you.
Some people imagine travelling or pursuing hobbies, while others just want enough stability to keep their current lifestyle. The income needed for these goals varies a lot from person to person.
In the UK, the full new State Pension offers a basic income to those with sufficient qualifying National Insurance contributions.
However, for most people, this is only a part of their retirement income. Clarifying your retirement goals helps determine how much extra savings you need to build up before leaving work.
As well as what you want to do in retirement, the amount of money you need will depend on a number of factors.
This includes your planned expenditure, any debts you have such as a mortgage, whether you have a partner, how much they earn and whether you plan to leave money after your death.
All this is not easy to figure out. However, Pensions UK has developed a tool called the Retirement Living Standards. This shows the cost of living at retirement across three different living standards: minimum, moderate and comfortable.
Breaking down spending in categories including house, food, transport and holidays, the tool comes up with figures for costs for a single person in retirement and for a couple in retirement.
The figures are updated every year to take into account the general rate of inflation and price rises in those key categories.
As of December 2025, it estimates the following annual cost of retirement living as follows:
| Minimum | Moderate | Comfortable | |
| One person | £13,400 | £31,700 | £43,900 |
| Two people | £21,600 | £43,900 | £60,600 |
While this is useful as a general guide, it will not take into account your particular circumstances such as any debts you have or the size of your pension pot.
A financial adviser can help you understand how much money you may need in retirement by producing a more personalised forecast.
They can also use cashflow modelling to show you different approaches to saving towards retirement could affect how much money you end up with.
Cashflow modelling can also show different scenarios to account for factors like inflation levels and varying investment returns.
Time is one of the most influential factors in building a pension pot which could allow you to retire early.
The sooner you start making contributions, the longer savings can benefit from compound growth.
Even small, regular contributions in your 20s or 30s can grow substantially over time, offering greater flexibility in later life.
Life commitments such as mortgages, childcare costs, or education fees often delay pension contributions.
However, reviewing your finances as your income increases can help you benefit from higher earning years and make up any shortfall as you approach retirement.
Getting expert financial advice can help you to select which pension investments best match your attitude to risk.
A financial adviser will also give you regular updates on how your investments are performing and will monitor the market to see whether you can improve that performance.
Retirement income usually comes from a mix of the State Pension, workplace pensions, and private savings.
Many people also utilise Individual Savings Accounts (ISAs), investments, or property income to top up these sources.
Having diverse income streams provides flexibility in how funds are withdrawn and helps manage taxes and lifestyle needs over time.
While pensions grow in a tax-efficient manner, withdrawals are usually taxed as income. In contrast, proceeds from ISAs can be withdrawn tax-free.
Understanding how these sources work together helps you organise your finances in a way that supports your objectives.
If you have a defined benefit pension which you’re looking to finance your retirement, you will need to choose how to access the money.
You could choose to withdraw money from the pot as and when you need to — this is known as pension drawdown.
You could choose to use some or all of your pension pot to buy an annuity. A lifetime annuity is an income which will be paid to you for the rest of your life, regardless of how long you live.
Instead of a lifetime annuity, you might want to buy a fixed-term annuity. This provides income for a specific period of time such as 5, 10 or 20 years. At the end of the term, a lump sum is often paid out.
Fixed-term annuities are becoming more popular for people to finance the ‘gap’ between taking retirement and receiving your State Pension.
Taking professional advice can be highly beneficial when it comes to choosing how to fund your retirement.
Your financial adviser can advise on which financing route would work best for you and can help guide you through the variety of options available when it comes to annuities.
And if you are intending to pursue the drawdown route, a financial adviser can help you on investment decisions and the most tax-efficient way to take money from your pension pot.
Planning for early retirement often involves balancing ambition with practicality.
You will need to consider carefully how long your savings may need to last, especially as life expectancy continues to rise in the UK.
Retiring at 55 could mean funding up to 30 years of living costs – and potentially even more.
Even with careful saving, unforeseen events such as market fluctuations or personal circumstances can greatly affect outcomes.
Your financial adviser can monitor your progress and keep you updated on pension and taxation rules to help you adapt to changing conditions.
An adviser can also act as a useful ‘sounding board’ for your ideas about your retirement and provide much-needed peace of mind and confidence about the financial decisions which shape the rest of your life.
Achieving financial independence before State Pension age requires time and discipline.
Knowing what income you will depend on and how long it needs to last can help set realistic goals for the future.
If early retirement is on your mind, speak to a financial adviser today to explore whether it’s achievable for you — and the steps you can take to make it happen.
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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It may not sound very festive, but pensions for children or grandchildren are some of the best Christmas gifts you can ever give them.
Not only can starting a pension for your offspring give them a great financial start in life, but also it is a tax-efficient way to pass on wealth.
With inheritance tax already hitting a growing number of families, this could be something your children and grandchildren will thank you for in future.
Let’s take a look at the benefits of pensions for children and how you can go about setting them up.
One of the greatest weapons in any investor’s armoury is time. The effect of compound growth means that the more time money is invested – providing returns remain positive – the more it will grow.
Setting up a pension while your children are still young means that even small contributions have many decades to grow.
Think of a child’s pension as the acorn from which an oak tree can grow.
Putting money into a pension also means you won’t have to worry about your children frittering funds away before they’re mature enough to value financial security.
Under current legislation, your child or grandchild won’t get access to their pension fund until they’re at least 58.
There are several tax advantages to starting a pension for your child.
Firstly, like an adult pension, contributions to a child’s pension get a 20% boost from the Government in the form of tax relief, even though your child or grandchild is unlikely to be paying tax. This is something which Junior ISA accounts or cash savings accounts don’t give.
Secondly, making regular contributions to a child’s pension can count as a regular gift from income.
This means that the money may be free from inheritance tax (IHT) and it will also reduce the size of your estate for IHT calculations, while passing on wealth to your descendants.
Thirdly, any growth generated by the pension will not be liable for income tax or Capital Gains Tax.
When your child comes to draw down on the pension, current tax legislation means that 25% of the pension can be taken tax-free. The remaining 75% may attract income tax, under relevant regulations.
You can start a pension for a child from their birth.
It is important to note that only a parent or legal guardian can set up a child pension.
However, once a child pension is set up, anyone can contribute, including grandparents, godparents, family members or friends.
The parent or legal guardian looks after the child pension until the child turns 18, at which point they are responsible for it.
As mentioned above, they will only be able to access the pension once they reach the age of 58, under current legislation. This age may rise in the future.
Under current legislation, a maximum of £2,880 can be paid into a child’s pension for the 2025/26 tax year. Adding to the 20% tax relief, this becomes £3,600 a year.
As an illustration of the power of compound growth, if you invested just £2,880 for one year for your child at the age of 8, by the time they were able to take the money out at the age of 58, the money would have grown to more than £26,500 (assuming an annual return of 4%).
Add in regular contributions and you can easily see how relatively small amounts of money can potentially grow into a sizeable pension pot. However, it is important to point out that this is dependent on investments producing a positive return.
While your child will have control of their pension once they hit 18, you and others can still put money into that pension.
Again, making regular gifts from income into the pension can help reduce inheritance tax burdens while passing on wealth to your child.
There are a number of different pensions available to start up for your child and it can be daunting trying to work out which is best for them – and for you.
That’s one of the reasons why it is a very good idea to take expert financial advice before deciding on:
An independent financial adviser will also help you to look at other aspects of your family finances, including ensuring that your own future is financially secure, as well as that of your child or grandchild.
The idea of your child or grandchild one day having a pension may seem like decades away while they’re excitedly unwrapping their Christmas presents.
However, setting up a pension now could ensure not only they have a brighter future but their own children and grandchildren could do too.
Talk to us today to find out more about putting in place a true gift for life, not just for Christmas.
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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At first glance, cashflow modelling doesn’t sound like the most exciting thing in the world.
But what if I told you that I’ve seen clients so shocked and pleasantly surprised when I’ve taken them through a cashflow modelling exercise that they’ve taken the print-out straight to the pub to show their friends?
Used correctly, cash flow modelling can provide you with the roadmap to get to your desired financial destination – or maybe even somewhere you never thought you could get to.
It can, literally, change your life.
How? Let me explain.
Put very simply, cash flow modelling is a form of software which allows you to map out how much money you could have over time.
You input figures such as your salary, the current value of any assets you have, what investments you have, the value of your house, etc.
You can then use that information to model what will happen to your money under a wide variety of different scenarios.
With each scenario, the software will show you in number and graph form how much (or how little) money you will have every year for however many years you specify.
Because the software is so adaptable and allows for so many variables, cash flow modelling can be used for almost any kind of personal financial forecast.
For example, you can see what effect a rise or a fall in inflation will have, what difference a 3% increase in annual investment returns will have on your assets and how much your pension could increase if you invest another £100 a month.
Cashflow modelling is particularly good at demonstrating the difference between potential returns at different investment risk levels because the software has market data dating back to 1990.
This means that it can account for and illustrate the effects of market volatility and market shocks such as the dotcom boom and bust of the early 2000s and the financial crisis of 2008.
It’s also useful at every stage of your financial journey, from first starting a pension to accumulating wealth, through drawdown of your pension pot and even into planning for potential care costs later in life.
The best way to show what cash-flow modelling can do? A real example.
Imagine turning £18,000 into £60,000 overnight.
Meet my client. She earns £160,000. Her partner earns £42,000.
Their question: Are we being tax-efficient – and how do we afford nursery fees without wrecking cash flow (their child is about to go nursery)?
They’ve got £50,000 in the bank and £250,000 in pensions. The pensions are invested cautiously (risk level 4/10) and modelled back to 1990.
We tested two changes:
Sacrificing £60,000 of salary drops her taxable income to £100,000 – the threshold where free childcare vouchers kicks back in.
Before: £160,000 salary → £95,786 net
Partner: £42,000 → £33,759 net
Joint: £130,346 net
Less £93,000 annual spend (including £10,000 nursery) → £37,346 left
After the change: joint net income falls to £102,317 – a drop of £28,029.
But £60,000 lands in her pension overnight.
And childcare costs of £10,000 disappear, cutting annual spending to £83,000 from £93,000.
Net drop in net income – £18,000.
Effectively, they’ve swapped £18,000 of lost disposable income for £60,000 of long-term wealth.
They’ll repeat it for three years – £180,000 total into pensions for a net cost today of around £54,000.
There are plenty of moving parts, but we assume any surplus income (above spending and pension contribution) sits in cash which, to be clear, wouldn’t be our recommendation.
Then we ran two forecasts:
Baseline: No pension contributions, cautious portfolio (risk 4/10), nursery fees paid from post-tax income. We also assume they will need to withdrawal £6,000 a month from their portfolio from age 60 to fund their lifestyle in retirement.
Revised: £60,000 p.a. pension contributions, higher-growth portfolio (risk 8/10), claiming childcare vouchers and allowances. We also assume they will need to withdrawal £6,000 a month from their portfolio from age 60 to fund their lifestyle in retirement.
The cashflow modelling graphs tell the story (amounts in red indicate a shortfall in funds):
Baseline scenario:
Revised scenario:
Two key decisions – sacrificing an amount of income into your pension over the next three years while it remains the most tax-efficient time to do so and increasing your risk profile – can have a powerful impact.
While it is important to stress that investments can go down in value as well as increase and that cashflow modelling produces forecasts rather than definite outcomes, the potential scenarios from those different decisions are very clear to see.
Talking about money in theory is never as impactful as talking about money in practice.
Not only does cash flow modelling look at your potential future real-life money situation, it gives you the facts and figures in black and white.
It is often said that seeing is believing and in that respect, cashflow modelling is the best way in which you can see your future money situation.
When you can visualise your life on a screen, it feels tangible and, in many cases, it feels achievable.
Clients come away after a cashflow modelling exercise with a real sense of security, of knowing that they’re doing the right thing to achieve their financial goals.
Sometimes it can unlock some really life-changing decisions and give people the confidence and peace of mind to put those decisions into action.
It’s also important to point out that cash flow modelling isn’t just for the future: it can help people today as well as tomorrow.
For example, after going through a cashflow modelling exercise with one client, I was able to say to them “actually, you’re saving too much money at the moment. You can afford to go on that exotic holiday this year that you’ve always thought you couldn’t”.
Cashflow modelling can help people in the here and now, let them enjoy their lives more and not put things off.
It would be a mistake to think cashflow modelling is only useful if you’re near retirement and want to see how long your pension pot will last.
For example, it can be tremendously helpful for people in their 20s or 30s who are wondering whether they can afford to start a family and, if so, how large a family that could be.
Equally, if you have retired but want to know how to make your money go further, cashflow modelling will be able to show you the likely outcomes of different scenarios.
Far from being a dry technical tool, cashflow modelling is one of the most powerful and insightful weapons in the financial adviser’s armoury.
While it’s not a crystal ball, it’s definitely a roadmap – and one which you would do well to consult.
To find out how cashflow modelling can help map out your future, get in touch 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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As the Autumn Budget approaches, speculation around potential changes to pension tax policy has resurfaced, particularly regarding the future of the tax-free lump sum.
Several newspapers have run articles questioning whether Chancellor Rachel Reeves is targeting a tax raid on lump sums to raise funds for the Treasury this November.
We look at whether this is likely to happen and what lessons can be learned from what is becoming something of an annual event.
A pension lump sum refers to the amount of money which you can take from a pension that you do not have to pay tax on.
Under current UK pension legislation, individuals are generally entitled to access up to 25% of their pension fund tax-free, known as the Pension Commencement Lump Sum (PCLS).
As of the time of writing, under most pension scheme arrangements, you can access anything up to the full 25% of your pension as a lump sum from the age of 55.
This will increase to the age of 57 by 2028.
As of the time of writing, the maximum amount you can take from a pension tax-free is £268,275.
Some people who took out tax-free money from their pensions before rules changed in April 2024 can take out more than that sum under transitional protection rules.
None of us – apart from the Chancellor – can answer this question definitively.
Media speculation about a potential reduction in the pension tax-free lump sum has intensified in recent months.
However, such a cut would appear to go against the general direction of Government pension policy.
From the introduction of auto-enrolment onwards, Governments of both main parties have been keen to encourage people to save more for their pension and not rely so much on the State.
Cutting the tax-free lump sum would not act as an encouragement to people in their 30s and 40s to save more for their retirement.
While the Government is making unused pensions count towards inheritance tax from April 2027, that measure affects families of pension holders rather than the pension holders themselves, who would be hit if the tax-free allowance was cut.
Clearly without a crystal ball, we cannot say for certain what will happen to tax-free allowances.
However, that is even more reason not to act hastily and do something you could later regret.
In situations where you fear a financial benefit could disappear, it is tempting to take action.
Nevertheless, in the case of tax-free pension lump sums, this could really backfire.
To start with, if you decided to access your tax-free allowance now (assuming you are of the age when you can) then you would be acting on rumour, rather than fact. As any investor knows, that is rarely a wise course of action.
Secondly, by cashing in your tax-free lump sum now, you could lose out of thousands of pounds worth of tax-free money in the future.
To take an example, let’s say you’re aged 55 and have a pension of £400,000. Cashing in your lump sum now, you would be able to get £100,000 tax-free.
However, assuming a growth rate of 5.78% on a medium risk level of investment, you would be missing out on a considerable amount of tax-free cash, as you can see below:
| Year | Pension value | Tax-free sum |
| 2025 | £400,000 | £100,000 |
| 2035 | £712,000 | £178,000 |
Taking tax-free money now could also mean your loved ones paying out more in inheritance tax.
If you were to die before April 2027, current rules mean your descendants don’t have to pay income tax on any money in your pension. But if you take the lump sum now, that money would become part of your estate and would be subject to inheritance tax.
On a broader point, if you have a future income plan in place for your retirement, taking a lump sum earlier will mean you having to recalibrate that plan or risk running out of money at some point in the future.
It is in situations like this that taking expert advice from a financial professional before making any decisions is crucial.
A financial adviser can look at the whole picture, taking into account your individual circumstances and financial and life goals, and give you the advice which works best for you and your family.
Speculation about tax changes inevitably increases in the run-up to every Budget, but making major alterations to your financial plans in response to rumours is not a good idea.
A tax-free lump sum is one of the great benefits of having a pension and you should think carefully about when and how to access it.
Getting expert financial advice can help you to make the most of your lump sum for you and your family.
Get in touch today to speak to us about how we can help.
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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Estate planning is essentially working out how you would like your assets to be managed and passed on after your death.
In this article, we look at the estate planning process, the financial and legal aspects and how estate planning solutions can help you and your family.
You don’t have to be rich or have extensive land and property holdings to benefit from estate planning.
In fact, with inheritance tax (IHT) allowances frozen until at least 2030, even people with moderate levels of assets could end up leaving their descendants with tax bills if they’ve not taken estate planning advice.
Getting expert advice on estate planning can:
On a basic level, estate planning starts with you adding up the value of all of your assets, from money to property.
When calculating your assets, it’s important to take into account any unused defined contribution pensions you have. This is because from April 2027, unused pensions will form part of your estate and will be subject to inheritance tax.
Once you’ve added up your assets, you need to subtract any liabilities you have, such as loans, mortgages and other payments. The resulting sum is your estate.
You now need to plan what to do with your estate after your death. This can include things like:
In order to make those wishes legally binding, you will need to make a will. Getting professional legal advice at an early stage will help to create, manage and safely store your will.
To make sure that everything in your estate goes to the right person, you will need to put together a full list of your assets and outline who will get what.
Your assets can include:
You should get your assets valued regularly so you always have an accurate picture of the total value of your estate.
All assets left to your spouse or civil partner – including property – will not attract inheritance tax upon your death due to something called the spousal exemption.
However, assets left after their death could attract inheritance tax, as detailed below.
With limited exceptions, inheritance tax (IHT) of 40% is charged on anything you leave after your death over £325,000. This amount is known as the ‘nil-rate band’.
If you leave your main home to your children or grandchildren, you may also get a residence nil-rate band of £175,000. This adds up to a maximum £500,000 before tax kicks in. Therefore, a couple who are married or in a civil partnership can potentially pass on up to £1m without their inheritors paying tax.
There are several strategies and estate planning solutions which can help you to cut down on inheritance tax bills which your loved ones may face.
These include things like gifting, trusts, life insurance and maximising allowances.
Check out our blog on inheritance tax planning to find out more.
While the basics of estate planning may sound straightforward, there is a lot of complexity involved in the process.
Getting expert advice from a financial adviser can help not just in putting together your estate plan and actioning it, but also in putting that plan in the context of your overall financial situation.
This way, not only will you have peace of mind for the future that your wishes will be carried out and your loved ones will be cared for after your death, but also that you will have confidence in your finances for your own life.
Estate planning is a vital part of helping your loved ones when you are no longer here and is becoming more important due to the increasing pressure of inheritance tax.
At Fairstone, we have a raft of estate planning experts who have helped hundreds of families face the future with confidence and ensure assets are passed on to the next generation.
To start your estate planning journey and find out more about estate planning solutions, get in touch 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. Always seek professional advice before making financial decisions. It is important to note that the value of investments and the income from them can go down as well as up and that you may get back less than the amount you invested.
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Inheritance tax (IHT) is one of those subjects I see many families push to the back of their minds, until it suddenly becomes unavoidable.
The reality is that with house prices rising, tax-free allowances frozen, and new rule changes on the horizon, more families than ever will be affected.
Acting early isn’t just about protecting wealth; it’s a selfless step that puts your loved ones first, sparing them unnecessary stress and cost in the future.
Every family’s situation is unique, so it’s always important to seek professional advice before making any big decisions. That said, understanding the basics of inheritance tax can help you plan ahead and avoid being caught out.
Over the years, I’ve spoken with many clients who assumed IHT was just for the wealthy, only to discover that the value of their home alone pushed them over the tax threshold. The good news is there are straightforward steps you can take to reduce your liability for IHT.
This guide summarises many of the initial conversations I have with clients and their families. I hope that a quick walk-through of some of the high-level strategies will help you avoid paying more inheritance tax in the UK than you have to.
Inheritance tax used to be something only very wealthy families worried about, but that’s no longer the case.
House prices have increased dramatically and inheritance tax allowances haven’t kept up. That is leaving more people finding out that their family faces a large tax bill when they pass wealth on.
In some parts of the country, especially London and the South East, house prices have soared. Over 700,000 homes across Great Britain are worth more than £1 million.
But it’s not just million-pound homes that are affected. The average UK house price is around £300,000 today, which means many ordinary family homes are close to or over the inheritance tax threshold.
The rules on how much you can pass on tax-free haven’t moved for years.
Right now, you can leave £325,000 tax-free (this is called the nil-rate band) and an extra £175,000 if you’re passing your home to children or grandchildren (this is the residence nil-rate band). That makes a combined total of £500,000.
The problem is these limits haven’t risen in years, even though the value of houses and savings has. If they had risen with inflation, families would have much more breathing room.
That’s why more families are now finding themselves caught by inheritance tax, often without realising it. As a result, I’m seeing more people take action early to protect their loved ones from an unnecessary tax burden in the future.
One of the simplest ways we reduce inheritance tax is by making full use of allowances.
These thresholds can make a significant difference, but many people don’t realise just how much protection they provide when combined.
Here is a quick summary of the key allowances to be aware of:
| Allowance | Amount | How it works |
| Nil-rate band | £325,000 | Every estate gets this basic threshold before IHT applies |
| Residence nil-rate band | £175,000 | Applies when passing your main home to your spouse, your children or grandchildren |
| Annual gift allowance | £3,000 | You can gift this amount each year without it counting towards IHT. If unused, the previous year’s allowance can be brought forward too |
| Small gifts exemption | £250 per person | Unlimited recipients, provided no other exemption is used |
For couples, these allowances can be combined, effectively doubling the protection. That means, with the right planning, you could pass on up to £1 million tax-free to your children or grandchildren. I often see families’ relief when they realise how effective these combined allowances can be.
Lifetime gifting is a popular way to reduce inheritance tax. The concept is straightforward: the more you give away during your lifetime, the smaller your taxable estate will be when you pass away.
There are a few ways to approach this:
The benefit here isn’t just tax efficiency, it’s also about seeing your loved ones enjoy the gift while you’re still around. I’ve seen clients experience real joy helping their children buy a first home or supporting grandchildren through university.
| Gift type | IHT treatment |
| Exempt transfers | Always tax free |
| Potentially exempt transfers | Tax-free if donor survives 7 years |
| Chargeable lifetime transfers | May be taxed if above nil-rate band |
| Time between gift and death | IHT rate on gift |
| 0-3 years | 40% |
| 3-4 years | 32% |
| 4-5 years | 24% |
| 5-6 years | 16% |
| 6-7 years | 8% |
| 7+ years | 0% |
Trusts often sound complicated, but they’re simply a legal way of holding and managing assets on behalf of others.
They can be an effective tool for inheritance tax planning because they allow you to pass on assets while keeping some control over how they’re used.
Some common types of trust include:
Trusts can be useful if you want flexibility, protection from disputes, or reassurance that wealth is used responsibly. I’ve worked with families where trusts have been a lifeline, ensuring wealth is distributed fairly across generations.
Pensions have quietly been one of the best-kept secrets in inheritance tax planning. For now, most pension pots are outside your estate, which means they usually don’t trigger inheritance tax. That means:
But the bad news is that these rules are changing. Starting on 6 April 2027, unused pension funds will be counted as part of your estate for inheritance tax purposes. That means for the first time, your pension could be subject to inheritance tax, even if you die before drawing from it.
The government has confirmed that death-in-service benefits (like the pay-out from your employer’s scheme if you die while working) will remain exempt from IHT.
Another big change is who handles the paperwork and tax when someone dies. Originally, pension providers would have had to report and pay the inheritance tax. But now it’s going to be the personal representatives, the executors or family members managing your estate who are responsible.
What this means in real terms is that more estates, especially those with significant pension pots, will face inheritance tax, and families may have to deal with a lot more paperwork during a stressful time. That’s why I’m seeing a lot of people choosing to get ahead of this now.
Even with good planning, inheritance tax can still be a factor. That’s where life insurance comes in.
A policy written in trust can provide a lump sum to cover any IHT liability, ensuring your beneficiaries don’t need to sell property or other assets quickly to pay the tax bill.
For many, this can bring peace of mind, knowing their loved ones won’t face unnecessary financial stress.
The rules around IHT are under review, and changes may affect:
Many people are reviewing their plans now to take advantage of the current rules while they remain in place.
Inheritance tax planning doesn’t need to be overwhelming. By taking time to understand the allowances, gifting rules, and opportunities available, you can make informed decisions that protect your estate and support your family’s future.
I’ve helped many clients and families put these steps into practice, and the common theme is always peace of mind, knowing that wealth is protected and passed on in line with their wishes. If you’re concerned about inheritance tax or want to explore your options further, now is the time to act.
Get in touch with us today to discuss your estate planning.
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. Always seek professional advice before making financial decisions.
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Yes, through effective estate planning. While estates over £325,000 are typically subject to Inheritance Tax (IHT) at 40%, there are several ways to reduce or eliminate this liability.
These include gifting assets during your lifetime, using trusts, leaving your estate to a spouse or civil partner, and making charitable donations.
The standard nil-rate band is £325,000. Anything above this is taxed at 40%. However, if you leave at least 10% of your estate to charity, the rate on the remaining taxable estate drops to 36%. If your estate qualifies for the residence nil-rate band, the threshold could increase to £500,000.
If you leave your estate to a spouse or civil partner, it’s entirely exempt from IHT. Additionally, your unused nil-rate band can be transferred to them, potentially doubling their threshold to £650,000. This exemption does not apply to divorced partners or those whose civil partnership has been dissolved.
Gifts made more than seven years before your death are generally exempt from IHT. If you die within seven years, the gift may be taxed, but the rate decreases the longer you live after making it. This is known as taper relief. The closer the gift is to your date of death, the higher the tax rate.
Gifts to registered charities are exempt from IHT. If you leave 10% or more of your net estate to charity, the IHT rate on the rest of your estate drops from 40% to 36%. In some cases, beneficiaries can top up charitable gifts to reach the 10% threshold and trigger the reduced rate.
There are three categories:
Yes. A whole-of-life insurance policy held in trust can be used to cover IHT liabilities. If properly structured, the payout won’t be considered part of your estate and won’t be taxed. It’s important to keep premiums up to date and ensure the policy value matches the expected IHT bill.
As at the date of this article, defined contribution pensions fall outside your estate and can be passed on IHT-free. However, from April 2027, Inheritance tax will be levied on unused pension funds after death.
For more on this topic, please read our dedicated blog on inheritance tax and pensions. In addition, if you’ve withdrawn funds and they remain in your bank account at death, they may be taxed. Defined benefit pensions have different rules, so it’s worth checking with your provider.
Additional reliefs include:
Even spending your wealth during your lifetime can reduce your estate’s value and IHT liability.
The truth is, inheritance tax is no longer just an issue for the very wealthy. Even families with an average-sized home, some savings and a pension can now find themselves above the threshold. For loved ones, that can mean facing an unexpected bill of thousands of pounds at an already stressful time.
Thinking ahead is not about beating the tax system. It is about making thoughtful choices so the people you care about most are not left with a burden.
Here is how the rules work today:
The issue is that these allowances have been frozen for years, while property and asset values have kept rising. That is why more estates are being drawn into inheritance tax each year.
At the moment, pensions are usually kept outside of your estate, so they are often passed on without IHT. From 6 April 2027, this will change. Unused pension pots will be included when working out the value of your estate.
That means:
For many households, pensions are one of the largest assets they own. This change alone could push more estates into the IHT net.
At present, you can give away:
There is speculation that these rules may be tightened. If that happens, families will have fewer ways of passing on wealth during their lifetime.
The nil-rate band of £325,000 and residence nil-rate band of £175,000 are both frozen until at least 2030. With the average house price in the UK now over £285,000, and closer to £500,000 in London, it is easy to see why more families are exceeding the threshold.
This freeze acts as a “stealth tax”, quietly pulling more estates into inheritance tax each year without any headline rise in rates.
Imagine a family who bought their home for £180,000 in the late 1990s. Today, it is worth £550,000. Add in a pension pot and some savings, and the estate could easily be over £1 million.
Under the current rules, pensions do not count. But from 2027, they will. This could mean a sizeable tax bill for their children, even though the parents may never have considered themselves wealthy.
This is why more people are paying attention. Inheritance tax is no longer something that only affects a small minority.
Having an up-to-date will is one of the simplest ways to protect your wishes and may help reduce tax.
If you have not updated who your pension should go to, the funds could end up inside your estate and taxed.
Making use of today’s gift allowances could be worthwhile, especially if the rules are tightened. Giving while you are alive also means you can enjoy seeing your loved ones benefit.
Trusts are not suitable for everyone, but they can be a useful tool for controlling how wealth is passed down.
The earlier you start thinking about inheritance tax, the more choices you will have. Leaving it until rules change may reduce your options.
I have spoken with many families who feel uncomfortable talking about inheritance tax. It is not always easy to think about what will happen after you are gone. But when people do take action, it is almost always out of care for those they love.
I have seen families avoid painful decisions because plans were made in good time, and I have seen the relief and peace of mind that brings. In my experience, planning ahead for inheritance tax is one of the most selfless steps you can take.
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. Always seek professional advice before making financial decisions.
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The pension changes start on 6 April 2027. Other possible changes, such as to gift rules, have not yet been confirmed.
It is charged at 40% on the value of an estate above the tax-free thresholds.
Not always. It depends on the size of your estate. If your estate including your pension is below the inheritance tax thresholds, there will be no IHT.
Small gifts and annual allowances are currently exempt. Larger gifts are exempt if you live for seven years after giving them. Rules may change in the future.
We have written a full guide on avoiding inheritance tax which covers practical steps families can take. This article focuses on the changes arriving in 2027 and how they may affect you.
For example, did you know that in many cases, you don’t have to take a lump sum in just one lump?
Are you aware that with careful planning and expert help, you can use a lump sum to retire earlier than you may have thought possible?
And did you know that your lump sum can actually grow even after you retire?
Here we take a look at the essentials of the pension lump sum and outline how it can be one of your most effective paths to a fulfilling retirement.
A pension lump sum refers to the amount of money which you can take from a pension that is tax-free.
At the current moment in time, up to 25% of the amount you have saved in a pension fund can be taken tax-free. This is unless you benefit from safeguarded benefits such as protected tax-free cash, in which case it may be more.
As of the time of writing, you can access anything up to the full 25% of your pension as a lump sum from the age of 55. This will increase to the age of 57 by 2028.
In the main, yes. If you have a defined contribution pension – where you (and potentially your employer) put in contributions to build up a pot of money – then you are free to access your lump sum as you like.
If you have a defined benefit pension (also known as a ‘final salary’ pension) then there is normally less freedom when it comes to your lump sum.
Defined benefit schemes give a guaranteed monthly sum upon retirement. Normally they offer pension holders a choice between a larger lump sum and a smaller monthly payment or a smaller lump sum and a larger monthly payment.
Defined benefit schemes usually offer lump sums only in one payment.
However, defined contribution schemes are more flexible.
You don’t have to take your 25% tax-free lump sum all at once. It is possible to take it in whatever stages you like – in a series of monthly sums, quarterly payments or annual payments. You can also start drawing on it and then either increase, decrease or pause withdrawals according to your specific circumstances.
Also, you can decide to take a large sum at the start for things such as paying off debts or buying a once in a lifetime holiday. You could also do that that after a few years, providing you haven’t exceeded your 25% tax-free allowance.
No. If you want to, you can keep working after taking a lump sum, even working full-time.
As a result, your lump sum or part of it could be used for things such as paying off your mortgage or financing your children through university.
You could also use money from your lump sum to start working part-time, taking regular monthly draw-downs to supplement your part-time income.
Yes! You can use money from your pension lump sum to provide a regular income before you reach State pension age.
For example, if you have built up a £250,000 pension pot, you can take £62,500 as a lump sum.
You could take that money aged 64 and use it to give yourself a monthly income of over £1,730 until you reach the current State pension age of 67.
While the pension commencement lump sum itself cannot be taxed, even as a pensioner, any other income will still be subject to tax.
Anything you earn above the personal tax allowance of £12,570 a year will still be subject to income tax at 20%, rising to 40% at £50,271 a year.
This is just one of the reasons why getting expert advice from a qualified financial adviser is so important.
Your adviser can show different scenarios to work out the best way to use your pension lump sum to achieve your life goals.
The adviser can also show you how best to combine your lump sum with other pension savings to finance your retirement.
Generally speaking, it is best to keep your lump sum within your pension fund as long as you can.
Unless your lump sum is small, withdrawing it to put the money into savings could mean you end up paying tax on those savings.
While putting the lump sum into a cash ISA will avoid tax, the interest rate paid could be lower than inflation. This would eat away at the value of your lump sum over time.
Keeping all or part of your lump sum within your pension fund will shelter it from tax. Depending on the performance of your investments, you could also see your lump sum grow, even if you have already taken out some of it.
Previously, pensions were not subject to inheritance tax. This is one of the reasons why we advised clients to keep their lump sums for as long as possible.
However, from April 2027, all unused pensions, including lump sums, will count towards the value of an estate.
In addition, if you die after age 75, your beneficiaries will pay income tax on money from your pension.
This makes keeping a lump sum after the age of 75 questionable since you will be effectively passing on a tax liability.
This is another reason why getting expert advice on your pension is so important.
A pension lump sum is a key part of your financial arsenal when it comes to later life planning.
Used well and with the help of expert advice, a lump sum can help you achieve a host of life goals.
To find out more about how a lump sum could help you, get in touch with 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. Always seek professional advice before making financial decisions. It is important to note that the value of investments and the income from them can go down as well as up and that you may get back less than the amount you invested.
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