Budgets generate a great deal of noise. Within minutes, newspapers, accountants and financial advisers begin publishing lengthy lists of winners, losers and changes to allowances.
This year we thought we would do something different and focus on just the things that might be of more interest to you.
For most Herbert Scott clients, there is very little in this Budget that requires immediate attention. There have been no significant changes to the main rates of tax on earnings, pensions or dividends, and no wholesale rewriting of the financial planning rules. The Government’s own summary says that the Budget avoids broad-based tax rises and protects most individuals and businesses from increases.
That does not mean nothing has changed. The following points are the ones most likely to be relevant.
Cash and savings will become less tax-efficient
- From 6 April 2027, savings income will be taxed at 24%, 44% or 49%, depending on the tax band into which it falls. These rates will apply across the UK.
- The Personal Savings Allowance remains in place and interest within an ISA will continue to be tax-free. The proposed reduction in the Cash ISA limit has also been abandoned, with the overall ISA subscription limit remaining at £20,000.
Our view has not changed: cash is important, but holding substantially more than you are likely to need can carry a long-term cost. Cash should normally provide security, meet known expenditure and cover emergencies. Beyond that, inflation and tax can steadily reduce its real value. ISAs, pensions and, where appropriate, Premium Bonds may offer a more tax-efficient home for part of a cash reserve, although each has different benefits and limitations. This is not a reason to make hurried changes. It is simply something we will continue to consider as part of your financial plan.
Rental income will also face higher tax rates
- From 6 April 2027, property income in England, Wales and Northern Ireland will be taxed at 24%, 44% and 49%. This is four percentage points above the present basic, higher and additional rates applied to most earned income.
For clients who own personally held investment property, this may affect the net return they receive. However, a higher tax rate does not automatically mean that a property should be sold. Transaction costs, Capital Gains Tax, the quality of the property, rental yield and its place within the wider family plan all need to be considered. Where this is relevant, we will incorporate the change into future planning discussions.
A limited allowance for some pensioners
- From April 2027, the full new State Pension is expected to exceed the frozen Personal Allowance. The Government is therefore introducing a pension tax allowance intended to prevent people whose only income is the State Pension from facing small Income Tax bills or unnecessary administration.
The allowance is unlikely to affect many Herbert Scott clients because most have income from occupational or private pensions, investments, property or other sources in addition to their State Pension. Nevertheless, we will take it into account where applicable.
Business owners should take advice before a sale
- Business Asset Disposal Relief continues to be important for qualifying business owners. The tax rate applying to qualifying gains increased from 10% to 18% from 6 April 2026, subject to the £1 million lifetime limit and the relevant qualifying conditions. This limit is now to be reduced to £500,000.
The direction of travel is clear: business owners should not assume that selling their company will produce the same net proceeds as earlier planning may have suggested. If the sale or transfer of a business is being considered, good planning needs to start well in advance. The timing of a transaction, the ownership of shares, the two-year qualifying requirements and the way proceeds will be used can all be material.
Changes for future first-time buyers
- The Government has proposed a new First-Time Buyer ISA to replace the Lifetime ISA for new savers from April 2029. The proposed account would allow contributions of up to £4,000 a year and provide a 25% Government bonus when the money is used for a qualifying first home. Existing Lifetime ISA holders are expected to be able to continue using their accounts.
This is some way off and the final rules will matter. For now, we would not recommend changing an existing savings strategy simply because of the announcement. We will revisit it when the details are settled, particularly for clients helping children or grandchildren with a first home.
What does all this mean for you?
For most clients, the answer is reassuringly simple: probably very little, and certainly nothing that requires a hurried response.
We will review the relevant changes as part of our normal planning work. If an announcement affects your existing arrangements or creates a worthwhile planning opportunity, we will raise it with you.
You do not need to read every Budget summary, follow every headline or try to work out what each measure means for your future. That is part of what you employ us to do.
Of course, if something in the Budget has caused you concern, or if your circumstances have changed, please contact us. Otherwise, there is unlikely to be any reason to arrange an urgent meeting.
A wider observation
Although there is relatively little in this Budget to disturb most personal financial plans, it is harder to be as relaxed about the wider economic position.
The Budget offers some short-term support and avoids broad increases in the principal rates of tax. However, it does not by itself resolve the longer-term challenges facing the country, including weak productivity, pressure on public services, government borrowing and the increasing cost of servicing the national debt.
The Office for Budget Responsibility estimates that higher borrowing costs will add an average of £14 billion a year to government debt interest compared with its Spring forecast. On the plus side, it has upgraded its forecast for economic growth in 2026 to 1.2%.
The new Prime Minister, Andy Burnham, has said that he does not intend to call a general election within the next 12 months and has previously indicated that the next election will be in 2029. Whether the Government can make the more substantial changes it believes are necessary without seeking a fresh electoral mandate remains to be seen. That is ultimately a political question rather than a financial planning one.
Our role is not to predict elections or political outcomes. It is to make sure your financial plan is sufficiently resilient to cope with changes of government, tax policy and economic conditions. That is why we plan for the long term, diversify sensibly and avoid allowing a single Budget, Chancellor or political headline to dictate important financial decisions.
For now, there is no need for most clients to do anything. We will continue to watch the detail and let you know if that changes.
Please note:
Herbert Scott Ltd has published this article for general information only and it does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only. Please do not act based on anything you might read in this article without first seeking advice.
All contents are based on our understanding of HMRC legislation, which is subject to change.