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After all the headlines and speculation on the run up to the budget, there were no major shocks. In some ways the outcome seems not to have warranted all the fuss, unlike last year.
Leaving the pernicious impact of fiscal drag aside, on initial inspection there doesn’t appear to be much announced that will affect existing financial plans.
What are the key changes and how will they affect you.
Increases to Tax on Property Income, Savings Interest & Dividends
Income tax on specific income sources will go up by 2%. For dividend income from April 2026 (basic and higher rates only), and for property and savings income on all rates from April 2027.
- Income Tax for dividend income will now be 10.75% at the ordinary rate and 35.75% at the upper rate from 2026 to 2027. The dividend additional rate and dividend trust rate will both remain unchanged at 39.35%. The dividend allowance will remain unchanged
- Income Tax rates for property income will be 22% at the property basic rate, 42% at the property higher rate, and 47% at the property additional rate.
- Income Tax for savings income will now be 22% at the savings basic rate, 42% at the savings higher rate and 47% at the savings additional rate
Income tax and NI thresholds are frozen for an extra three years to 2031, extending the previously announced freeze that was up to 2028. IHT thresholds are also frozen for an extra year to 2031.
This increase in income tax, along with the changes to capital gains tax, and the freezing of allowances and thresholds, will likely mean it is wise to review your current position and potentially consider new structures/products to protect you from additional tax.
Cash ISA Allowance Reduced to £12,000 — from April 2027
- The annual allowance for cash ISAs will fall from £20,000 to £12,000.
- The overall ISA limit remains £20,000, meaning the remaining £8,000 must be allocated to stocks & shares or other non-cash ISAs.
- Savers aged over 65 will retain the full £20,000 cash ISA allowance.
What this means is that clients who rely on cash ISAs for low-risk, tax-free savings will face reduced sheltering capacity and may need to consider alternative investment vehicles.
New High-Value Property Surcharge (“aka Mansion Tax”) — from April 2028
A new annual surcharge will apply to residential properties valued at £2 million or more.
- Homes valued from £2 million and above will incur an annual surcharge, in addition to the existing council tax.
- The surcharge increases in tiers, starting at £2,500 and rising to £7,500 per year for homes valued above £5 million.
The Valuation Office will conduct a targeted valuation exercise to identify properties above £2 million and therefore in scope.
We will need to see the devil of the detail when it is released in due course.
You can find an interactive map from Tax Policy Associates here which estimates how much each postcode and constituency will pay. Its approximate but still makes for interesting data.
Conclusion
Whilst there was nothing particularly dramatic in this budget, we are still dealing with the impact of pensions being brought into scope of IHT and the freezing of allowances and thresholds which mean you will most likely be paying more tax.
The impact of the change to pensions cannot be understated, we have seen cases where IHT will rise by 800% from April 2027. At its worst, triple taxation can apply, if addition to the IHT and income tax payable, the change also impacts eligibility of the residential nil rate band.
If you are at all concerned about how these changes might affect you or your family, please do get in touch with your usual contact to arrange a review of your estate and pension planning. We are here to help you understand your position, explore your options, and ensure your arrangements remain aligned with your long‑term goals.
Further thoughts on the UK budget and the three horseman of the market apocalypse from our investment team can be found here
