Breathing space for today, hope for the future

Friday 30th October 2026

Introduction

The Chancellor, John Healey, delivered the UK Budget on 28 October 2026, setting out a package focused on easing household cost pressures while supporting business investment and long-term economic growth. The Government's theme was "Breathing space for today, hope for the future".

It’s set against a background of Trump’s “war of choice” the consequences of which, that don’t seem to have an end date, being higher fuel costs, higher inflation, and higher interest rates. These consequences are being felt around the world. It means the interest the government must pay to borrow money has risen, as it has for those of you borrowing money. There has been much publicity around this in recent months as Government Gilt/Bond rates have increased. This increased cost simply means the Government needs more money to balance the books and stick to their fiscal rules.

Savings, Property and Dividends

Banks make more money when interest rates are higher and so he announced the higher tax Banks pay on their profits double to 6%. Likewise, the interest you receive on your savings has increased so the tax on your savings interest and indeed property rental income, which was already set to rise by 2% from April 2027 will now rise by 4%. For a 20% basic rate taxpayer this is a 20% increase in the amount of tax you will pay on your savings and property compared to this year. Following the increases, the income tax rates on savings interest beginning April 2027 will be 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers. We’ve discussed before the order of income and how it is taxed so also bear in mind the impact is compounded that reliefs and allowances are set against other income such as wages or pensions first so may push interest and rental income into higher rate tax bands.

It reinforces the importance of considering how savings and investments are structured and sheltered from tax, including the use of ISAs and other appropriate tax-efficient arrangements, such as pension contributions.

On the ISA front there was good news that the previously announced changes to cash ISA limits due to come into effect in April 2027 have been abandoned and the cash ISA limit will remain at £20,000 for all individuals over the age of 18. This also means the tax charge on stocks and shares ISAs holding cash will not go ahead. Alternatively, a new ISA incentive will be explored for people investing into a stock and shares ISA for the first time. It was also announced that a new First Time Buyer ISA, due to launch in April 2029, will be introduced to replace the Lifetime ISA for new savers.

In the meantime, existing Lifetime ISA holders will be able to continue to contribute to their savings under the current rules. In a more immediate move, the government will cut the lifetime Isa penalty if you buy your first home above the £450,000 limit. Currently, if you purchase a home above the threshold, you will incur a charge of 25% on the balance of the lifetime ISA.

From midnight on 29 October, savers who use a lifetime Isa to buy their first home above the £450,000 threshold will incur a reduced penalty of 20% of their lifetime Isa balance. It a shame that the additional 5% penalty if a LISA isn’t used for property or pension, wasn’t removed completely and likewise the £450,000 cap.

There was has been much talk of encouraging savings into stocks and shares, particularly UK shares. This is maybe why the tax rate on dividends, that increased this year by 2%, is not changing and likewise no change to the Capital Gains tax rates, so good news on this front.

Pensions and inheritance planning

The Government has announced a welcome change to the taxation of pension death benefits. From 28 October 2026, pension benefits that would otherwise be tax-free will no longer become subject to income tax simply because they are paid more than two years after the member’s death. This should provide greater certainty for beneficiaries and families dealing with pension arrangements following a death.

Being very cynical we think it’s a recognition that Inheritance Tax being applied to pension funds on death will not be an easy process and potentially take more than the 2 years to sort out. We’ll know more next year when the new rules come into force, but the administrative burden on Executors will not be easy. The previously announced changes to the inheritance tax treatment of unused pension funds from April 2027 remain an important planning consideration. Reviewing how pensions fit into wider estate planning continues to be a priority and has been a key area of discussion and planning with you over the past 2 years since Rachel Reeves original budget announcement.

State Pension

While there were no major changes to the pension tax rules, there was an announcement aimed at keeping those with incomes less than the full State Pension out of tax. From 6 April 2027 full State Pension will increase to £13,036.40, greater than the personal allowance of £12,570, meaning those who rely solely on the State Pension would now have an income tax liability. However, where an individual’s total income is equal to or less than the full new State Pension they will be entitled to the new pension tax allowance. This applies regardless of the source of the income – it won’t all have to be from the State Pension. Total income will include private pensions, savings, dividend, and property income. The allowance will be 20% on the difference between the personal allowance and their income, up to £13,036.40, thereby eliminating the tax charge. This equates to a maximum amount of £93.28.

Just to keep it nice and complicated for low earning pensioners! - If someone earns just over the new State Pension amount, they will still receive the allowance, though it will be tapered off – for every £3 of income above the full State Pension, the pension tax allowance will reduce by £1. When someone earns £13,319 or more, they’ll not receive any of the pension tax allowance, and everything above the personal allowance will be taxable.

Scottish taxpayers will receive the allowance calculated using the 20% basic rate, rather than the Scottish starter rate. The allowance will be applied automatically without needing to contact HMRC and will apply until April 2030 when the Government will review it.

Though previously announced, the Budget also confirmed that the triple lock on the State Pension will remain in place for the remainder of this Parliament, to April 2029. From April 2030, with the aim of sustainability, this will be adjusted so that the State Pension will rise by the highest of 2.5%, inflation (CPI), or the amount required to maintain its value relative to earnings as reached in April 2029.

Business owners and future disposals

Business Asset Disposal Relief currently allows qualifying business owners to pay a reduced rate of Capital Gains Tax on eligible gains. From 6 April 2027, the lifetime limit for this relief will reduce from £1 million to £500,000. This could have significant implications for business owners considering retirement, succession or the eventual sale of their business. It means extra tax of £30,000 based on a £1 million sale. For those contemplating a disposal, it may be particularly important to review the potential tax implications and timing well in advance.

The Chancellor also announced Founders’ relief, a new Capital Gains tax (CGT) relief due to take effect on 6 April 2027. It aims to reward founders and early investors who build innovative, high-growth UK companies. Qualifying share disposals will attract a 10% CGT rate, subject to a £10 million lifetime limit per individual. Any BADR claimed may reduce this limit. Individuals must have held a 25% stake in a qualifying trading business for more than five years. The business must meet at least two of three tests.
The Budget included several measures intended to encourage business growth, entrepreneurship and regional investment, including consultations on support for entrepreneurs and further initiatives aimed at boosting investment across the UK.

Our View

This was a relatively measured Budget, with no major surprises for investors or pension savers, and it feels as though the bigger decisions have been deferred until next Autumn. The emphasis was on helping households through ongoing cost-of-living pressures while laying foundations for economic growth and business expansion, part funded through increase in tax on savings interest and property income. As always, long-term financial plans should remain focused on personal objectives rather than reacting to short-term political announcements.