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As the dust starts to settle on this year’s Budget announcements, it’s clear that while headline income tax rates remain largely unchanged, there are several targeted measures that could significantly affect your personal tax position over the coming years.
Simon Hurren, Private Client Partner looks at what the impacts could be and highlights the key actions you can take now to prepare.
Income tax allowance and thresholds frozen
It was no particular surprise to see that the tax allowance and thresholds were frozen for a further two years until 2030/31.
Given these were already frozen until 2028/29 there’s no immediate impact to your tax affairs. But with the further freeze, comes a greater emphasis on income tax planning and in particular the use of pension contributions to manage your tax affairs.
Higher rate and additional rate tax relief is given on pension contributions (not made by salary sacrifice) by increasing the bands by the gross pension contribution made.
Therefore, this can be a valuable tax planning tool to reduce the impact of the frozen bands, in particular against increases in pay.
What to do now
- For anyone approaching the £100,000 threshold this will be particularly important as the marginal rate of tax increases to 60%, and even more so for those in receipt of free childcare. A review of pension contributions will be essential.
Increase in income tax rates for investment and property income
While headline income tax rates remain unchanged, there will be a 2% increase in tax on income from dividends, property, and savings.
Dividends will be affected from April 2026, though this increase does not apply to additional rate taxpayers. Savings and property income will see the increase from 2027, applied across all tax bands.
Those whose income is largely from salary, pension, or self-employment may notice little impact, but individuals who draw most of their income from dividends, rental properties, or savings are likely to be more affected.
What to do now
- For business owners who take income through dividends, it’s worth reviewing whether this remains the most tax-efficient approach. Depending on the level of income and the corporation tax rate, taking a higher proportion of salary may be more beneficial.
- Planning ahead for the 2026 dividend changes can help minimise unexpected tax burdens.
- Property investors continue to face a more challenging tax environment due to higher income tax on rental profits, additional stamp duty on second homes, and restrictions on mortgage interest relief.
- Maintaining detailed records of income and expenses is increasingly important, and reviewing the structure of future property investments may help mitigate the impact of these changes.
- Reviewing investment portfolios to ensure they remain tax-efficient in light of the upcoming rate increases will also help manage the impact on overall returns.
ISA Budget changes
With additional tax rates applying to investment income, the income tax free wrapper of an ISA becomes ever more attractive.
But, whilst the headline allowance of £20,000 for each year has remained, from April 2027 the amount you can invest in a cash ISA will be restricted to just £12,000 for anyone under 65.
With the full allowance still available as a cash ISA for those over 65.
What to do now
- For those with substantial savings or investment income, making full use of ISA allowances remains a key strategy to protect income from additional tax.
- The ISA allowance does not carry forward each year, so planning ahead is essential to make sure you can maximise the amount you put in each year.
Inheritance Tax planning
The 2024 Budget saw monumental changes announced to Agricultural Property Relief and Business Property Relief.
As a reminder, from April 2026 the 100% relief will be available on assets up to £1m with the relief only available at 50% on any assets exceeding this.
Whilst there were no further changes announced this year, there was one update – that the £1m allowance will be transferrable between spouses where not used on the first death.
What to do now
- As the changes don’t come in until April 2026 it’s imperative to review your position if you hold assets which qualify for relief so that you can consider any action that can be taken beforehand.
- If nothing else, it’s important to fully understand the impact of all the changes and how you plan to settle any potential IHT liabilities.
Pension salary sacrifice
Salary sacrifice has long been an attractive way to contribute into your pensions, offering a National Insurance saving for both the employee and employer on the amount invested.
But from April 2029, the NI relief will be capped at £2,000 per year.
It will still be beneficial to make your pension contributions via salary sacrifice though, as full tax relief will be paid at source rather than having to submit a Tax Return to claim the higher and additional rate tax relief.
What to do now
- As these rules don’t come into effect for 3 years there’s still plenty of time to maximise the current relief from NI for the full amount sacrificed.
Mansion tax
Something that was highly anticipated in November’s Budget was a tax on the largest and most valuable properties – a Mansion Tax – to apply alongside council tax.
And so, from April 2028, a new “High Value Council Tax Surcharge” will apply to homes in England valued at £2 million or more, alongside ongoing annual increases in standard council tax rates.
The Government have opted to apply the charge as part of the council tax regime, which is no real surprise seeing as this is administratively straight forward with the Council Tax system already in place.
What to do now
- There is little planning that property owners can undertake to mitigate this charge, however reviewing your finances to account for higher annual outgoings is important. And for some it may be a trigger for downsizing earlier than perhaps planned.
We’re here to help
With the combination of frozen allowances, higher taxes on property and investment income, and changes to ISAs and pension contributions – careful planning is more important than ever to protect your wealth over the coming years.
For advice bespoke to your unique circumstances, get in contact with Simon or one of the team by calling 0330 058 6559 or email hello@scruttonbland.co.uk
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