Frozen thresholds and new caps reshape the financial landscape for savers and investors
Last year’s Autumn Budget outlined several fiscal changes that will significantly influence personal and family wealth planning in the coming years. Understanding these reforms is the first step towards protecting your financial future and keeping your strategy effective in a changing economic environment.
A key announcement is the decision to keep Income Tax thresholds frozen until 2031. This extension of the freeze means that as wages increase with inflation, more people will be pushed into higher tax brackets, a phenomenon known as ‘fiscal drag’. Consequently, a larger portion of your earnings could be subject to higher rates of tax in the coming years.
Adjustments to tax and savings
The freeze also applies to Inheritance Tax (IHT) nil rate bands, which will remain at their current levels until 2031. As property and other asset values are likely to increase during this period, more estates could surpass the IHT threshold. This emphasises the importance of strategic estate planning now more than ever to ensure your assets are transferred to your loved ones in a tax-efficient way.
Changes are also coming for pension contributions. From April 2029, the tax NI (National Insurance) relief available through salary sacrifice schemes will be limited to £2,000. This change will reduce the tax and National Insurance advantages for employees who use this method to boost their pension funds, prompting many to reassess their retirement savings strategies.
New property and investment rules
The government has also introduced measures affecting property owners and savers. A new council tax surcharge will be applied to properties valued at over £2 million, increasing costs for those owning high-value homes. It is crucial to include this additional expense in household budgets and long-term financial planning.
Although the annual ISA allowance remains unchanged, the rules for saving will alter from April 2027. For those aged under 65, cash savings within an ISA will be limited to £12,000 per year. This change aims to encourage directing the remaining £8,000 of the allowance into stocks and shares investments, promoting investment over cash savings.
Importance of professional financial advice
These developments highlight the increasing complexity of the UK’s tax system. Navigating these changes without expert advice can lead to missed opportunities or costly errors, whether it involves decisions about selling assets, restructuring property ownership or adjusting pension contributions. Proactive financial planning is now essential, not optional.
We can assist you in understanding how this changing tax landscape impacts your specific circumstances. We can help identify alternative, tax-efficient strategies and ensure you are well-positioned to protect and grow your wealth, while avoiding unnecessary tax liabilities.
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested. The Financial Conduct Authority does not regulate estate planning, tax advice or trusts.
