The recent Budget announcements have laid out a roadmap for significant shifts in the UK’s financial landscape over the coming years. While these changes are complex and staggered, they require immediate attention from savers, investors, small business owners, and those planning for retirement. The core message is clear: the incentives and penalties within the tax system are being reshaped, making proactive financial planning essential to protect and grow your wealth so you are able to live the life you want.
I’ve spent the last few days reading through the announcement to break down the most critical confirmed changes—from ISA allowance restructuring to major tax rate increases—offering you a guide to help you navigate what lies ahead.
The Great ISA Shift: Encouraging Investment Over Cash
One of the most notable changes targets how individuals use their Individual Savings Accounts (ISAs), specifically aiming to funnel younger savers away from Cash ISAs and into Stocks & Shares ISAs.
The overall annual ISA contribution limit remains at £20,000, but how you can split this limit is changing for those under 65:
- For Savers Under 65: The annual contribution to a Cash ISA will be capped at £12,000. To utilise the full £20,000 allowance, you must allocate a minimum of £8,000 into a Stocks & Shares ISA (or other qualifying non-Cash ISA types). This move is a direct government nudge towards equity investment, aligning long-term growth potential with saving habits.
- For Savers Aged 65 or Older: You are exempt from this restriction and keep the full flexibility to place the entire £20,000 into a Cash ISA.
This allowance restructuring, effective from 6 April 2027, is paired with an increase in the tax on non-ISA savings income, creating a strong incentive to maximise the use of tax-protected wrappers.
It is important to note that these changes will only impact new money being invested and will not affect existing ISAs.
The New Tax Paradigm: Higher Rates for Unearned Income
Perhaps the most impactful set of changes involves the substantial increase and recalibration of tax rates on income derived from savings, property, and dividends. Whilst many business owners would dispute the assertion that Dividend income is ‘unearned’, this signals a strategic move by the Treasury to draw a clearer, and costlier, line between income earned through employment/pensions and income generated from assets.
1. Savings and Rental Income Tax Hikes (From 6 April 2027)
Tax rates on both savings interest and rental income are set to rise by 2% across all bands:
| Income Tax Band | Current Rate | New Rate (from April 2027) |
| Basic Rate | 20% | 22% |
| Higher Rate | 40% | 42% |
| Additional Rate | 45% | 47% |
2. The Personal Allowance Trap (From April 2027)
Crucially, the mechanism by which your Personal Allowance (£12,570) is applied is changing. Under the new rules, the allowance and any other personal reliefs must be applied against employment and pension income first. Only after this income is covered will the remaining allowance be applied to other types of income (savings, property, dividends).
These changes also impact the existing limits applied to individuals losing their personal allowance once income passes the £100,000 limit.
The consequence? For many taxpayers, this ordering change will mean a greater proportion of their savings and rental income falls into the new, higher tax brackets of 22%, 42%, or 47%. It effectively reduces the tax-free buffer that currently shields some non-employment income.
3. Dividend Tax Increases (From 6 April 2026)
Dividend tax rates will see a significant jump:
- Basic Rate: Rises from 8.75% to 10.75%
- Higher Rate: Rises from 33.75% to 35.75%
- Additional Rate: Remains unchanged at 39.35%
4. The Bond Gains Clarification
To close a potential loophole, the government explicitly confirmed that gains from onshore and offshore investment bonds will now be counted as savings income. This means they will be subject to the higher tax rates (up to 47%) from April 2027.
A Tougher Environment for Small Business Owners 🧑💼
The increased dividend tax, effective from April 2026, presents a particular challenge for small business owners and entrepreneurs who often take a minimal salary and extract profits via dividends.
This tax rise amplifies the impact of double taxation. The company already pays Corporation Tax on its profits; the dividend tax is the second layer, paid by the shareholder (the owner).
The higher tax burden reduces the after-tax income that entrepreneurs can take from their businesses, potentially acting as a disincentive to risk-taking, investment, and growth.
When combined with other rising costs—such as higher minimum wages and increased employer National Insurance contributions – the cumulative effect is a much tighter operating and financial environment for incorporated small businesses.
National Insurance, Pensions, and the Frozen Thresholds
Several other measures confirm a trend of increasing tax revenue through both direct hikes and ‘fiscal drag.’
1. The Salary Sacrifice Cap (From 6 April 2029)
For high-earning employees and employers, a key tax efficiency is being curtailed. The amount of National Insurance (NI) saving an employee can make through a salary sacrifice pension scheme will be capped at £2,000 annually.
While the cap is delayed until 2029, it necessitates a long-term review of remuneration packages and pension contribution strategies for many businesses.
2. Employers and NI
There were no headline rate changes to National Insurance, however thresholds will remain frozen in line with incomes tax limits which have now been extended until 2030/31. The per-employee threshold (the Secondary Threshold) at which employers become liable to pay NI will also be maintained at £5,000 until 2030/31.
3. Class 2 NI Restriction
The ability for UK nationals living abroad to make voluntary Class 2 NI contributions (used to top up State Pension eligibility) is being removed. This affects long-term expatriates relying on this mechanism to secure their pension rights.
4. Frozen Tax Thresholds (Until 2030/31)
Perhaps the most insidious of all changes is the continuation of the freeze on Income Tax, National Insurance, and Inheritance Tax (IHT) thresholds until 2030/31. As wages rise due to inflation, this ‘fiscal drag’ will automatically pull hundreds of thousands of individuals into higher tax bands without the government technically raising rates.
5. State Pension and the Personal Allowance
The State Pension will rise by the triple lock mechanism (4.8%) to £241.30 per week, equating to £12,547.60 per year. This is now just below the frozen Personal Allowance of £12,570.
Inheritance Tax: A Slight Relaxation Amidst a Freeze
On Inheritance Tax, one minor piece of good news was announced alongside a long freeze:
- Business and Agricultural Relief: From 6 April 2026, any unused relief on Business Relief and Agricultural Relief will be transferable between spouses. This simplifies estate planning.
- The Freeze: Despite this technical improvement, the IHT nil-rate band threshold is confirmed to be frozen until 2031, reinforcing the use of IHT planning as a long-term necessity.
- Gifting Exemptions: There are no changes to IHT gifting exemptions.
Your Next Step: Plan, Adapt, and Optimise
These changes, spanning from 2026 through 2029, create a landscape where tax efficiency will increasingly define the success of a financial plan. The measures—higher dividend tax, capped Cash ISA allowances, increased savings income tax, and threshold freezes—all point to a single conclusion: relying on historical tax planning methods will no longer be sufficient.
The time to act is now!
Reviewing your strategy well in advance of the effective dates (particularly April 2026 and April 2027) will allow you to adapt and optimise. Whether it’s restructuring how you extract profits from your business, prioritising Stocks & Shares ISAs, or locking in salary sacrifice benefits while they last, bespoke financial advice is your best tool for navigating the turbulent waters ahead.
Are you ready to stress-test your current financial plan against these new tax realities?
Get in touch to set up a meeting to discuss how these changes may affect your financial plan.
The information provided in this article is not intended to offer advice.
It is based on Una Vita Financial Planning Limited’s interpretation of the relevant law and is correct at the date shown. While we believe this interpretation to be correct, we cannot guarantee it. Una Vita Financial Planning Limited cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.