Never mind the Budget: These are the slated tax and wealth changes that families can't afford to ignore

Evelyn Partners suggests families avoid getting distracted by Budget speculation and make sure their finances are arranged in the best way for upcoming shifts in the financial landscape

• Pensions become subject to Inheritance Tax 

• Tax rate on savings income rises 2 percentage points 

• Cash ISA allowance will be cut 

• Income tax drag as personal allowance and thresholds remain frozen 

• Property income tax rises 2 per centage points  

• Tighter CGT environment demands use of allowances 

Less than two months before the first Budget under his premiership, PM Andy Burnham and his Chancellor John Healey are starting to face questions about how they will fund some of the spending pledges they have made, especially as the bond markets continue to put more pressure on the public finances.

Emma Sterland, Chief Financial Planning Director of Evelyn Partners and Managing Director of NatWest Private Banking & Wealth Management, says: 'While speculation over what will be in the next Budget has so far been more subdued than in previous years, it’s probable that the rumour mill will start turning in the coming weeks.

'It's natural that this key fiscal event attracts a lot of attention and some concern among clients – especially given the eventful nature of the last two Budgets - but until we know what is in there, we like to help them focus on what is actually in play, what we know is coming and what can be acted on or planned for.

'Many of our discussions with clients in the last two years have revolved around the key changes - affecting estate planning, pensions and retirement plans, savings and investments, and family businesses - announced at the October 2024 and November 2025 Budgets. While many are already implemented, the tax and financial planning landscape is set to transform further with important measures due to arrive next April. Principal among these is the inclusion of unused pension assets in inheritance tax liabilities but also increased tax rates on savings interest and rental income.

'It’s entirely possible that some of these changes have gone under the radar of even the most financially astute households, especially those measures which are yet to take force.

'We think this is a good time to take stock, cut through any pre-Budget noise that arises in the coming weeks and review your financial and legal arrangements so they are both fit-for-purpose in the current landscape and also prepared for the changes that are due next April.

‘The points we address here will impact each family differently and while some might seem straightforward, decisions must always be judged in the context of both the individual’s and their family’s overall financial situation. We find that families really benefit from sitting down with a financial planner to get a holistic view and discuss their goals and objectives – as this can often reveal that the best way forward with a particular issue is not what they had initially thought.’

The key financial changes and challenges that families must address

Emma says: 'Some policies announced at both the 2024 and 2025 have yet to take effect, and several will in the next tax year, commencing 6 April 2027.'

1. Pensions become subject to Inheritance Tax

Emma says: 'This is the big beast on the horizon, the most significant development in both pensions and estate planning for some time, and it has dominated conversations with many clients this year. It will transform many savers' plans for how they use their pensions, and for those who it catches unawares, a large and in some cases unnecessary tax bill could be the upshot.

'Currently, unspent funds in a defined contribution or money-purchase pension pot can be passed on to anyone free of inheritance tax. The only tax liability is, if the pension holder is 75 or older when they die, that the beneficiary will pay income tax at their marginal rate as they withdraw from the pension, assuming they have no personal income tax allowance left.

'That has obviously made DC pension pots a very attractive vehicle for passing on wealth for many years, and has resulted in a commonplace estate planning strategy - among those with other savings and assets that they can draw on to fund retirement - of leaving the pension "until last", and even leaving it totally untouched at death. This has also been very useful for those concerned about having to fund care costs in later life, as the pension pot could be saved as a fund for such a contingency, without having to worry about IHT at death.

'That strategy could be turned on its head for many come April, when most unused defined contribution pension funds and pension death benefits will be brought into the deceased's estate for IHT purposes. Not only will the pension be subject to IHT where the deceased’s estate exceeds the nil rate band - but for those aged 75 and older the income tax rule still applies, meaning an effective tax charge to the beneficiary receiving the funds of 52 per cent for basic rate taxpaying beneficiaries, 64 per cent for higher rate and 67 per cent for additional rate.

'Not only that but many families who do not currently have to worry about IHT will suddenly be drawn into the tax net as their estate exceeds their nil-rate bands thanks to the addition of pension wealth. Families can take a variety of steps to reduce an overall IHT liability, such as lifetime gifting, but ahead of this rule change we are seeing a focus on spending down or gifting from pensions.

'Some savers are taking their tax-free cash to spend, gift or reinvest, because this is a valuable benefit that will post-April effectively die with the pension holder. Others are looking to use the "normal expenditure out of income" exemption by withdrawing unneeded income from their pensions and gifting it steadily over time. Those 75 and older are even more likely to consider drawing down from pensions given the risk of double taxation of the pot at death.

'However, what’s right for one family will not be right for the next, so for instance we are always careful to stress that savers must make sure they retain enough assets to give them the retirement they want and to pay potential care costs. Talking to a financial planner can be invaluable in these complex situations, as it helps to clarify goals and objectives, and to understand how certain financial steps can achieve them. Detailed cash-flow modelling can be key to deciding how much of a pension can be spent or gifted. We also keep an eye on the income tax being paid on pension withdrawals as this could cancel out any IHT savings.

'The blanket spousal exemption from IHT will become even more significant post-April as this will be the only way a pension can be passed on IHT-free, outside of nil-rate bands. This requires many savers to check their pension beneficiary nomination, as it might no longer be sensible to name children. We are seeing older long-term cohabiting couples looking to get married to take advantage of the exemption, as the pension change emerges on the horizon.

'Finally, we are also seeing a surge in interest in whole of life insurance policies, written into trust, that will cover a swollen IHT bill at death and save beneficiaries not just the tax but also some administrative stress around paying the IHT bill and gaining probate.'

2. Tax rate on savings income rises two percentage points

Emma says, 'It was announced at the November 2025 Budget that the rates of tax on savings interest will rise by 2 percentage points from 6 April. That means non-ISA savings interest that falls outside of the personal allowance will be taxed at 22 per cent, 42 per cent and 47 per cent instead of the income tax rates of 20 per cent, 40 per cent and 45 per cent.

'Even though interest rates have been on a downward trend since last summer, they remain high compared to the period since the 2008 Global Financial Crisis, which ushered in an era of ultra-low interest rates. At the same time the personal savings allowances have been frozen since their inception more than 10 years ago at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and zero for those subject to the additional rate. Not just that, but frozen income tax thresholds mean more savers drift into higher marginal tax rates, where they must cope with a lower, or zero, PSA.

'All this means that the amount of tax people are paying on their savings interest has risen dramatically in recent years. Savers paid £1.2billion on interest in the 2021/22 tax year: for 2025/26 HMRC estimates it was £8.4billion, and for this tax year the estimate is not much lower at £8.2billion.[1]

'Savers who would rather not pay too much tax on their interest should keep track of the interest payments across all accounts, and the financial year in which that interest is taxable, in an effort to make best use of their PSA but not exceed it (at least not by too much). HM Revenue & Customs now receives most savings interest data directly from account providers, and will often adjust the following year's tax code - for those on PAYE - to pay the tax if PSA is exceeded. But anecdotal evidence suggests mistakes are possible, so it is worth examining HMRC's sums.

'The obvious way to avoid savings being taxed altogether is to save in a cash ISA, and this might be sensible for those who are not interested in using their ISA allowance for investing, and additional rate taxpayers who have no PSA. But many people want to use their £20,000 to invest, and furthermore as we note below, holding cash in ISAs will be restricted from next April for those under age 65.

'There are other tax-mitigation steps you can take. Couples can make use of two sets of allowances for both ISAs and savings interest. Where they are married or in a civil partnership, transfers of cash or other assets between spouses will not incur any tax charges. If they are to hold taxable savings, then it can make sense for the deposits to be held by whichever partner is subject to a lower rate of tax, to reduce the family tax burden.

'Where one partner is a non- or low earner, the starting rate for savings is a valuable benefit that is often overlooked. For those whose non-savings income does not exceed the personal income tax allowance, they can earn £5,000 in interest tax-free. This "starting rate band" falls steadily, pound for pound, to zero when income hits £17,570. It is important to point out though, that when you transfer cash or investments to your partner or spouse, they become the fully entitled legal owner, so trust is vital!

'The cash prizes on Premium Bonds from National Savings & Investments are tax free and this product also has the benefit of being easy to access, with cash usually paid within a couple of days of the holder requesting to sell bonds. The average prize rate is currently quite attractive at 4.35 per cent, although this is not a guaranteed return, and could be exceeded or lagged. There is no guarantee that any prizes will be won. Up to £50,000 can be invested in premium bonds per individual.

'Finally, for those with larger amounts of cash that they do not need immediate access to, investing in gilts – bonds issued by the UK Government – can provide an attractive and potentially tax efficient alternative to a cash savings account. As gilt yields are now quite elevated, it is possible to invest in gilts on the secondary market with low coupons that were originally issued when rates were very low, at prices below what they will mature at. The key point here is that price gains made on gilts are exempt from capital gains tax, so in these cases most of the highly predictable return on these will be tax-free.

'This is a strategy for more experienced investors and for many will be best explored with a professional adviser or investment manager. We are helping many of our clients achieve higher and more tax-efficient returns using gilts than they would receive on their cash savings, often as a part of a portfolio that includes money market instruments.'

3. Cash ISA allowance will be reduced

Emma says: 'From April 2027 the annual Cash ISA allowance for under-65s will be cut sharply from £20,000 to £12,000, while the overall ISA limit remains at £20,000. The Government says the purpose of the change is "encouraging retail investment so savers get more from their investments/savings".

'So, this could be an opportunity for those who hold a lot of cash savings to investigate whether some of that cash could be put to work in investment funds, where returns over the long term have fairly consistently and for many decades outstripped cash savings growth. Those who lack confidence in committing to or choosing investments can consider taking advice.

'Cautious savers prepared to step up a little on the risk ladder from cash accounts could also consider supplementing their reduced Cash ISA contribution with a Stocks & Shares ISA invested in lower-volatility assets such as short-dated bond funds or defensive multi-asset funds. It has also been clarified that money market funds will remain eligible investments for Stocks & Shares ISAs providing they do not compromise 100 per cent of the account. ISA holders will therefore continue to have a variety of investment options within Stocks & Shares ISAs, without having to take on a level of equity risk that doesn’t suit them.’

4. Income tax drag as personal allowance and thresholds remain frozen

Emma says: 'There's one thing that is not due to change next April – according to current policy - and that is the personal income tax allowance and the upper tax thresholds, but this is for many the most significant policy decision of all because of how it increases the income tax burden over time by stealth, a phenomenon known as “fiscal drag”. This works as pay inflation means millions more people drift across statis thresholds into higher tax bands, and the average tax rate paid by the workforce rises as more of their income is taxed at higher rates.

'The number of higher-rate taxpayers is estimated at 7.7 million in 2026/27, an increase of 51 per cent compared to the 5.1 million in 2022/23.[1] Around 1.29 million people are paying the additional rate in 2026/27 meanwhile, a 138 per cent increase on the 570,000 who did so in 2022/23. Former Chancellor Rachel Reeves announced at the November 2025 Budget that the personal allowance and income tax thresholds would remain frozen until April 2031 and this means that fiscal drag will continue to raise the tax burden for several years.

‘Earners might want to consider if they can keep more of their gross pay, and there are perfectly legitimate steps people can take to do this. Pensions remain one of the most effective tools for mitigating income tax, and for higher and additional-rate taxpayers, pension contributions continue to offer valuable tax relief at their marginal rate.

‘Increasing pension contributions, whether directly or through salary sacrifice where available, mean more gross pay is retained, albeit in the restricted environment of a pension where it will remain inaccessible until one's late-fifties. As taxable income is reduced, this can also prevent people from drifting into a higher tax band and losing other valuable tax allowances, like the PSA. This can be particularly valuable for those with income around £100,000, where the gradual withdrawal of the personal allowance - and for families with children the loss of childcare tax benefits - creates one of the highest effective marginal tax rates in the system.

'It is also worth noting that a £2,000 cap on salary sacrifice pension contributions is due to take effect in April 2029, so it might be a case of “use it while you can”. Where it makes sense for someone in these workplace pension systems, they could consider making room in their monthly budget to raise their contributions and take advantage of salary sacrifice before it’s restricted.

'Most earners have a gross pension annual allowance of up to £60,000, which means they can pay this amount into their pension each year and benefit from tax relief, as long as their earnings are not below this - in which case relevant earnings effectively act as a cap on their AA. Those who have a large lump sum they want to inject into their pension might also be able to use up any spare AA that they did not use in the previous three years, but again they must have the earnings in the current tax year to cover this amount.'

5. Property income tax rises 2 per centage points

Emma says: ‘Both buy-to-let investors and casual landlords face higher tax rates on rental income, when this also goes up by two percentage points at each marginal rate next April. This adds to an already challenging environment for landlords and investors, shaped by a much tighter tax regime, regulatory changes that give tenants much greater rights, and in recent years reduced capital gains as the property market in some regions has stalled.

‘As a result, many landlords are reassessing their position. While options such as transferring ownership between spouses or incorporating portfolios into company structures may help in some cases, these decisions are complex and need careful consideration. In line with a trend seen in recent years, some property investors may simply decide to sell up and redeploy capital elsewhere.’

6. Tighter CGT environment demands use of annual allowances

Emma says: 'The capital gains tax rates and exemptions are not due to change in April but many investors will still be catching up with a CGT regime that has altered dramatically in recent years. What will change for each individual on 6 April is they will lose this year's ISA allowance and also this year's CGT exemption, so where these have not been used to protect investments, action might be needed.

‘On 30 October 2024, CGT rates increased with immediate effect at that Budget from 10 per cent to 18 per cent for basic-rate taxpayers and from 20 per cent to 24 per cent for higher-rate taxpayers (excluding residential property, which was already taxed at 18 per cent/24 per cent). That step was especially significant for investors as it came against the backdrop of cuts to the annual CGT exemption under the previous Conservative government from £12,300 in the 2022/23 tax year to just £3,000 from April 2024.

‘We help protect clients as much as is practical from this tighter CGT environment, firstly by making sure that investments are held where possible in tax-protected wrappers like ISAs and pensions. Where allowances are available, this could mean selling tax-exposed investments and rebuying them in an ISA or pension, although this process in itself can result in a CGT liability if exemptions are exceeded. We are also finding, as the tax burden on savings, investments and estates grows and ISAs and pensions are already being maximised, that offshore bonds are becoming increasingly relevant to more families.

'Secondly, it can be wise to use up, where appropriate, the £3,000 annual exemption each year to realise gains tax-efficiently over time. Thirdly, married couples have the advantage of being able to use interspousal transfer and two sets of allowances (for both ISAs and CGT), with the option of a lower-rate taxpayer holding tax-chargeable gains.

‘Similar remedies can be employed to protect investment income from higher dividend tax. From 6 April this year, the rates of tax payable on dividends from shares, and funds that invest in shares, rose by 2 percentage points to 10.75 per cent for basic-rate taxpayers and 35.75 per cent for higher-rate taxpayers. For additional-rate taxpayers, the rate remains at 39.35 per cent. With only £500 of dividends per person now protected from tax by the annual allowance, investors should take action if necessary.

‘Higher and additional rate taxpayers in search of tax-efficient income from their investments might also – as noted above - consider investing directly in low coupon gilts that are currently trading below their redemption value, where most of the high probable “yield to maturity” will come in the form of tax-free capital gains. This is best considered with the advice of a financial planner or investment manager.

'It's also within the realm of possibilities that CGT could see some further change at the next Budget – we will have to wait and see.’

[1] Income Tax liabilities statistics: tax year 2023 to 2024 to tax year 2026 to 2027 - GOV.UK