What the Latest Budget Means for Your Pensions, Savings and Tax Planning

• You can still take up to 25% tax-free from your pension (subject to your remaining lump sum allowances).
• Pension tax relief continues as before.

These confirmations provide welcome stability for long-term retirement planning amidst broader budget pension and tax adjustments.

Salary Sacrifice: NI Exemption to Be Capped

From April 2029, the National Insurance exemption on pension contributions made through salary sacrifice will be capped at £2,000 per year. This capping is part of broader budgetary measures impacting tax changes.

Anything sacrificed above £2,000 will attract NI for both the employer and employee. This highlights the specific tax changes affected by the budget.

This will particularly affect workers earning below the Upper Earnings Limit (£50,270), as they’ll now pay 8% NI on salary sacrificed above this level. The outcome of these changes in the context of budget adjustments?

• Lower take-home pay, and
• Potentially smaller employer-boosted pension contributions, as many employers may no longer pass on as much of their NI savings due to budget restrictions.

However, salary sacrifice may still be worthwhile for some people, especially those trying to maintain access to Child Benefit or tax-free childcare. This budgetary element remains a critical consideration.

State Pension: Triple Lock Protected

The Budget confirmed that the triple lock remains in place for the rest of this parliament, despite other significant pension and tax changes in the budget.

This means State Pensions will rise by 4.8% in April 2026:

• Full New State Pension: £241.30 per week
• Full Basic State Pension: £184.90 per week (single) or £295.70 per week (married couples and civil partners)

Income Tax and National Insurance: Thresholds Frozen

As expected, the personal allowance, higher-rate threshold and additional-rate threshold remain frozen until 2030–31. Despite some budget exertions, these thresholds maintain income and NI consistency.

The secondary NIC threshold- the point at which employers start paying NI on earnings- is also frozen at £5,000 until 2030–31. There were no NI rate changes, reflecting broader budget tax stability.

Frozen thresholds mean more people will gradually drift into higher tax bands as earnings rise, known as “fiscal drag”. This results from broader budget and tax changes.

Read the full budget here

Savings Income Tax to Increase

From April 2027, tax on savings income will rise by 2% for all taxpayers within the adjustments introduced by the budget.

• Basic rate: 22%
• Higher rate: 42%
• Additional rate: 47%

This highlights the growing importance of making full use of ISAs (and pensions for long-term planning) to shelter savings from tax, especially in light of budget modifications impacting pensions and taxes.

Property Income Tax for Landlords

From April 2027, tax on rental income will align with the new savings rates, putting landlords into the broader web of budget pension and tax modifications.

• 22%, 42%, and 47% depending on your tax band.

Again, planning and tax-efficient wrappers such as ISAs become increasingly valuable amidst these budget-induced tax rates.

Read more on whether Buy To Let is still a good investment

Venture Capital Trusts (VCTs): Reduced Tax Relief

From April 2026, upfront Income Tax relief on VCT investments will reduce from 30% to 20%. This may change the overall attractiveness of VCTs for some investors navigating the new budget shifts.

ISAs: Cash ISA Limit Changes Ahead

The overall £20,000 ISA allowance stays the same, but from April 2027:

• Only those aged 65+ can contribute the full £20,000 into a Cash ISA.
• Under-65s will have a £12,000 Cash ISA limit, with the remaining £8,000 only available via a Stocks & Shares ISA.

This change is designed to encourage longer-term investing for younger savers in the context of the current budget alterations.

Lifetime ISA to Be Replaced

The Government plans to scrap the Lifetime ISA (LISA) and introduce a simpler ISA product for first-time buyers. A consultation is expected in early 2026, reflecting the broader budget pension and tax alterations.

It was also confirmed that the previously proposed British ISA will not be taken forward.

High Value Property Surcharge (“Mansion Tax”)

While not labelled as a wealth tax, the Chancellor announced a new High Value Council Tax Surcharge on properties worth £2 million or more from April 2028 as part of the wider array of pension and tax changes within the budget.

Proposed annual charges:

A consultation will cover how this applies to properties held in trusts and businesses.

Inheritance Tax: Allowances Frozen Until 2031

The nil rate band (£325,000) and the residence nil rate band (£175,000) are both frozen for another year to April 2031. These freezes are part of the pension and tax strategy embedded in the 2025 budget.

Pensions and Inheritance Tax: Big Changes Coming

From 6 April 2027, unused pension funds and death benefits will form part of the deceased’s estate for Inheritance Tax purposes. This inclusion reflects the broader strategy of budget pension and tax adjustments.

However:

• Death-in-service benefits from registered pension schemes will remain IHT-free.
• Benefits passed to a spouse, civil partner, or charity will remain exempt under current IHT principles.

This represents a significant shift and will require careful estate planning in light of the recent budget pension and tax changes.

Final Thoughts

The Budget introduces a mix of stability, gradual tightening and longer-term structural changes, encapsulated within the pension and tax shifts.

For many people, the combined impact of frozen thresholds, rising taxes on savings and changes to salary sacrifice will influence both everyday finances and retirement plans, which are all affected by the latest budget pension changes.