The Chancellor’s Autumn Budget yesterday delivered some headline-grabbing changes that will affect how millions of people save and invest over the coming years. While income tax rates remain untouched, the government has opted for what many are calling “stealth taxes” – measures that raise revenue without altering headline rates. For financial planners and clients alike, these changes underline the importance of reviewing strategies now to stay ahead.
1. ISA allowance shake-up – a nudge towards investing
From April 2027, the annual Cash ISA allowance for those under 65 will fall from £20,000 to £12,000. The overall ISA limit remains £20,000, but at least £8,000 must be allocated to a Stocks & Shares ISA if you want to use the full allowance. Savers aged 65 and over keep the current £20,000 cash limit.
Why does this matter? For many, ISAs have been the cornerstone of tax-efficient saving. Cutting the cash allowance is designed to encourage more people to invest rather than hold money in low-yield accounts. The government argues that investing over the long term can deliver significantly better returns – citing that £1,000 invested annually in stocks and shares since 1999 would have outperformed cash by around £50,000.
Planning tip:
- If you’re under 65 and risk-averse, start exploring investment options now. A Stocks & Shares ISA doesn’t have to mean high-risk equities – diversified funds or cautious portfolios can offer growth potential with managed risk.
- Consider using the next two tax years to maximise the current £20,000 cash ISA allowance before the change takes effect.
2. Tax on savings and dividends – the 2% squeeze
From April 2026, dividend tax rates will rise by two percentage points:
- Basic rate: 10.75% (up from 8.75%)
- Higher rate: 35.75% (up from 33.75%)
From April 2027, the same 2% increase applies to tax on savings income and property income. For savers outside tax wrappers, this means more of your interest will be taxed – and with frozen income tax thresholds until 2031, many will find their personal savings allowance eroded by fiscal drag.
Planning tip:
- Use tax wrappers effectively: ISAs and pensions remain powerful shields against these hikes.
- For business owners relying on dividends, review remuneration strategies early. Pension contributions or other tax-efficient structures may soften the blow.
- Couples can split assets to make full use of both partners’ allowances.
3. Why this matters for financial planning
These changes aren’t just technical tweaks – they reshape the landscape for savers and investors. Here’s what we’re advising clients to consider:
- Review your cash vs investment balance: With inflation still a factor, holding large sums in cash could mean losing purchasing power. A structured investment plan can help maintain real value.
- Plan for fiscal drag: Frozen thresholds mean more people will drift into higher tax bands. Strategies like pension contributions, charitable giving, and efficient use of allowances can mitigate this.
- Estate and succession planning: Inheritance tax thresholds remain frozen, so proactive planning is essential to protect family wealth.
4. Practical steps you can take now
- Maximise current allowances: Use the full £20,000 ISA limit while it lasts.
- Diversify: If you’re new to investing, start small and build confidence. Consider multi-asset funds for balanced exposure.
- Talk to an adviser: These changes highlight why financial planning isn’t just for the wealthy. Even modest savers can benefit from tailored advice to avoid unnecessary tax and make the most of opportunities.
Comment
The Autumn Budget signals a clear policy direction: encouraging investment and raising revenue through subtle shifts rather than headline tax hikes. For individuals and families, the message is simple – don’t wait until 2027 to adapt. Whether it’s rethinking your ISA strategy, planning for dividend tax changes, or reviewing your overall financial plan, acting early can make a significant difference.
How can we help?
Zoe Till is a Partner and Chartered Financial Planner in our expert Independent financial advisers team. Zoe’s areas of expertise include investment advice, retirement planning, IHT and lifetime cash flow modelling.
If you would like any advice concerning the subjects discussed in this article, please get in touch with Zoe or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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