The proposed reduction in the cash ISA limit has been abandoned, but tax on savings and property income will rise from April 2027.
Business owners face a lower lifetime limit for Business Asset Disposal Relief, alongside a proposed new relief for founders of high-growth companies.
Existing plans for investment bonds, pensions, overseas funds and high-value property should be reviewed as measures announced in the 2024 and 2025 Budgets will start to take effect.
Chancellor John Healey’s first Budget was quieter than many had expected and did not feature any of the blockbuster tax rises we saw in the 2024 and 2025 Budgets. Nonetheless, with no less than 98 legislative changes, cumulatively it still represents a fiscal event that will have a far-reaching impact on all.
Despite some expectations, there was no general increase in capital gains tax rates, no sweeping change to pension tax relief nor, the removal of the pensions lump sum allowance (tax-free cash). This leaves the main framework for capital gains, pensions and retirement savings broadly unchanged. For individuals, families and businesses seeking greater certainty, this has provided a degree of continuity.
Some proposals made in last year’s Budget have been reversed, while others have become more costly:
Scroll through to see the changes most likely to require action, and when they take effect:
Source: HM Treasury’s Budget 2026 document
The Office for Budget Responsibility (OBR) forecasts growth of 1.2% in 2026, slowing to 1.0% in 2027, largely reflecting the economic consequences of the war in the Middle East, before recovering. In addition, inflation is expected to remain elevated next year, continuing to create pressure on living costs for households.
| Calendar year | GDP growth forecast | CPI inflation forecast |
|---|---|---|
2026 | 1.2% | 3.1% |
2027 | 1.0% | 3.4% |
2028 | 1.6% | 2.1% |
2029 | 1.8% | 2.1% |
Source: Budget 2026.
The Personal Allowance remains £12,570, while the higher-rate threshold for income tax on earnings in England, Wales and Northern Ireland remains £50,270. Even without an increase in the main rates of tax on earnings, as incomes rise this can bring more income into a higher band in so-called stealth taxes. According to the OBR, this will result in nearly one in four taxpayers paying either higher or additional rate tax by 2030/31 relative to only 15% of taxpayers in the 2021/22 tax year.
For families, this reinforces the value of reviewing the household as a whole: how income is generated, which allowances remain available, and how taxable savings, ISAs and pensions each support longer-term objectives.
From 6 April 2027, savings and property income will be taxed at 24%, 44% and 49% across the basic, higher and additional rate bands respectively. These rates incorporate a further 2% increase on top of the rises announced last year.
The Personal Savings Allowance remains £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers; additional-rate taxpayers do not receive it. No further dividend-rate increase was announced in this Budget following the increases introduced in April 2026 which saw the basic and higher rates rise to 10.75% and 35.75% respectively. The additional rate for dividend tax remains at 39.35%.
A further 2% increase to income tax rates on savings income was announced in the Budget.
From 6 April 2027, income tax rates on savings income will increase by 4% from current rates.
A comparison of income tax rates on savings income, along with the income tax payable on £1,000 of interest, is below.
Compared to other income sources, there is now a “tax premium” on holding cash deposits.
From a UK tax perspective, low coupon UK Gilts are likely to become more attractive from 6 April 2027 (gains are CGT exempt).
Taxpayer | 2026/27 | 2027/28 |
Basic Rate Taxpayer | 20% | 24% |
Higher Rate Taxpayer | 40% | 44% |
Additional Rate Taxpayer | 45% | 49% |
Taxpayer | 2026/27 | 2027/28 |
Basic Rate Taxpayer | £200 | £240 |
Higher Rate Taxpayer | £400 | £440 |
Additional Rate Taxpayer | £450 | £490 |
These increases reach beyond cash deposit interest and also affect offshore investment bonds. Investment bonds are taxed differently from most other investments. Rather than being subject to capital gains tax when they are cashed in, returns on surrender of an offshore bond are treated as savings income and taxed accordingly. For individuals already planning to surrender an investment bond, it may be worth assessing whether a surrender in the 2026/27 tax year would be more beneficial.
The table below provides an illustration of the differential in tax liability where a £250,000 gain is crystallised from an investment bond surrender in the 2026/27 tax year, in comparison to the same bond being surrendered in the 2027/28 tax year:
| Illustrative offshore-bond gain | Gain arising in 2026/27 | Gain arising in 2027/28 |
|---|---|---|
| Chargeable-event gain | £250,000 | £250,000 |
| Tax on the gain before top-slicing relief | £108,243 | £118,243 |
| Less: illustrative top-slicing relief | (£29,783) | (£29,983) |
| Income tax attributable to the bond gain | £78,460 | £88,260 |
| Additional tax in 2027/28 | £9,800 |
For illustrative purposes only. Actual liability depends on the chargeable-event certificate, policy years, other income, allowances and reliefs. Professional tax advice should always be sought before taking any action.
The calculations above assume the individual’s only other source of income in each tax year is a £40,000 salary.
The lifetime limit for Business Asset Disposal Relief (BADR) will fall from £1 million to £500,000 for qualifying disposals made on or after 6 April 2027. The effect for someone realising a £1 million qualifying gain would be an increase of £30,000 in the total tax liability, as illustrated in the table below.
| Disposal date | Portion of qualifying gain | CGT rate | CGT due |
|---|---|---|---|
| Before 6 April 2027 | £1,000,000 | 18% | £180,000 |
| On or after 6 April 2027 | First £500,000 | 18% | £90,000 |
| Remaining £500,000 | 24% | £120,000 | |
| Total after 6 April 2027 | £210,000 | ||
| Additional CGT | £30,000 |
For illustrative purposes only. Assumes a £1 million taxable gain, not simply £1 million of sale proceeds; full BADR eligibility; no prior use of the lifetime limit; no available £3,000 annual CGT exemption; and that the remainder of the gain falls within the 24% CGT rate. Transaction costs and other reliefs are excluded.
Alongside the reduction in BADR, the Government proposes a new Founders’ Relief, applying a 10% CGT rate to up to a lifetime allowance limit of £10 million of qualifying lifetime gains per individual from 6 April 2027. It is intended for founders and significant early investors in high-growth, innovative UK businesses.
At first glance, Founders’ Relief may appear to replace BADR (which was formerly known as entrepreneurs’ relief and had a lifetime allowance of £10 million). However, the proposed eligibility conditions for Founders’ Relief appear more demanding.
Entrepreneurs will qualify for Founders’ Relief on the basis that they own at least 25% of the voting shares of the company at the point it commences trading, they have held their shares for a minimum period of five years and they have been UK resident for at least five years before sale.
The narrower BADR limit and more demanding Founders’ Relief conditions mean that business owners should review shareholdings, timing and succession plans well before a potential exit from the business.
The Government has dropped the planned reduction in the cash ISA subscription limit. Adults will continue to be able to place up to the overall £20,000 annual ISA limit in a cash ISA from 6 April 2027.
The proposed First-Time Buyer ISA is due to replace the Lifetime ISA for new savers from April 2029. Under the announced design, it would permit contributions of up to £4,000 a year, with a 25% Government bonus when funds are used for an eligible first-home purchase. The bonus would be capped at £20,000, and the property price limit would remain £450,000. Existing Lifetime ISA holders would be able to continue using their accounts.
More immediately, from 29 October 2026, an otherwise qualifying Lifetime ISA withdrawal for a first home above the £450,000 cap will face a 20%, rather than 25%, charge. The Government bonus will still be lost, but the reduced charge protects the saver’s own contributions from the additional effect of the existing penalty. Other unauthorised withdrawals remain subject to the 25% charge.
The full new State Pension is expected to exceed the £12,570 Personal Allowance in the 2027/28 tax year. From 6 April 2027, a new Pension Tax Allowance is designed to ensure that people who have reached State Pension age and whose total income consists solely of the full new State Pension, which is expected to rise to £13,037 per year, do not pay income tax as a result. The allowance is reduced for those whose total income exceeds the full new State Pension.
The Budget also removes the two-year rule under which otherwise tax-free pension death benefits could become taxable solely because payment was delayed. The change applies to payments made from 28 October 2026; other conditions for tax-free treatment remain relevant.
A separate change, announced previously and due to come into force on 6 April 2027, will bring most unused pension funds and death benefits within an individual’s estate for inheritance tax (IHT) purposes. Benefits passing to a spouse or civil partner will normally benefit from the spouse exemption, while the income tax treatment of pension death benefits would still be dependent on whether the deceased pension holder dies before or after age 75.
Our previously issued article: Pension planning is evolving what to expect after April 2027 highlights a practical consequence. Personal representatives may need information from pension schemes to establish the estate’s IHT position and to arrange payment of any IHT due on the pension fund. Pension nominations, the death-benefit options offered by each scheme and the availability of funds to settle tax therefore deserve review alongside a will. A nomination helps indicate who should receive benefits, but it does not remove estate-administration responsibilities.
For those looking to leave a legacy to charity, a welcome measure is the retention of the reduced IHT rate of 36%, which can be obtained if an individual leaves 10% of the baseline value of their estate to a UK registered charity, excluding the value of their pension fund. In this instance, assets in the estate excluding pensions would benefit from the reduced IHT rate of 36% whilst a 40% rate may still apply to the pension assets.
The end of the remittance basis regime in April 2025 was accompanied by the introduction of the Foreign Income and Gains (FIG) regime and new long-term-residence rules for IHT. The FIG regime principally concerns qualifying new arrivals during their first four years of UK tax residence. Separately, the Temporary Repatriation Facility (TRF) allows eligible individuals who previously used the remittance basis to bring historic, eligible foreign income and gains to the UK at a reduced rate.
Eligible amounts can be designated under the TRF at 12% in 2025/26 and 2026/27, rising to 15% in 2027/28, its final tax year. On £250,000 of qualifying historic foreign income and/or gains, this produces the following comparison:
| Tax year of designation | Amount designated | TRF rate | Illustrative charge |
|---|---|---|---|
| 2026/27 — by 5 April 2027 | £250,000 | 12% | £30,000 |
| 2027/28 — from 6 April 2027 | £250,000 | 15% | £37,500 |
| Additional charge at the later rate | £7,500 |
For illustrative purposes only. Assumes eligibility and no prior tax, credit or other adjustment affecting the charge. The comparison concerns designation: it does not mean the full amount must be physically transferred to the UK by 5 April 2027. Specialist tax advice should always be obtained.
For eligible individuals considering using the TRF, it may be worth assessing this before the increase to the TRF tax rate applies. In the Budget, the Government has also said it will continue to assess whether the residence-based regime strikes the right balance between international competitiveness, fairness and the public finances. That statement signals continuing scrutiny of the residence-based regime and previous non-domicile rules.
The High Value Council Tax Surcharge, announced last year, is due to apply in England from 6 April 2028 to owners of residential properties worth £2 million or more, based on 2026 values. It will be payable in addition to existing council tax. The Government has now published its response to the consultation on the scheme, which will be applied as displayed in the following table:
| Property value | Annual surcharge from 6 April 2028 |
|---|---|
| £2 million up to less than £2.5 million | £2,500 |
| £2.5 million up to less than £3.5 million | £3,500 |
| £3.5 million up to less than £5 million | £5,000 |
| £5 million and above | £7,500 |
The Government also intends to charge a 100% premium on the surcharge where an in-scope property has been substantially unfurnished and unoccupied for at least 12 months. A £2,500 surcharge, for example, would become £5,000 while that premium applies. This is separate from existing council tax premiums for empty homes or second homes.
For owners of second homes, or of a property awaiting sale, renovation or another use, the detail will matter. Further rules on how occupation, furnishing, discounts and exemptions are evidenced will need to be considered before the full effect on any home is clear.
From 6 April 2029, taxpayers already paying their tax liabilities via payments on account are expected to make smaller, more regular payments during the year. The aim is to collect tax closer to when income is earned, rather than through larger later payments. This is a cashflow and administration change, rather than an increase in the underlying income tax rate, but it may be significant for people with variable income and will require further monitoring.
This Budget has avoided some of the broad tax changes many had anticipated, but its effect should not be judged by this year’s announcements alone. Higher rates on savings and property income, a narrower BADR limit and the approaching pension IHT rules will affect different parts of a family’s finances. The timing of an investment bond gain or a TRF designation may also change the resulting tax bill.
For individuals deciding how to invest, draw retirement income, dispose of a business or pass on wealth, the priority is a joined-up review. This means existing plans should be reviewed against the new timetable, while allowing for the fact that some proposals, notably Founders’ Relief and aspects of the property surcharge, still require further detail.
BADR: Business Asset Disposal Relief, which applies a reduced CGT rate to qualifying capital gains from the sale of a business within a lifetime limit.
Chargeable event gain: A gain arising under the investment bond tax rules following a chargeable event, such as a full surrender.
FIG: The residence-based Foreign Income and Gains regime.
IHT: Inheritance Tax.
Top-slicing relief: A calculation that may reduce the income tax effect of an investment bond gain built up over several policy years.
TRF: The Temporary Repatriation Facility for eligible historic foreign income and gains of former remittance-basis users.
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