Advisers may breathe a sigh of relief as John Healey opted for a low-key first Budget as Chancellor, with a focus on boosting economic growth and giving families and businesses some respite from rising costs.

Healey stuck to the Labour manifesto pledge not to increase taxes on working people, but still delivered a range of measures for advisers to consider for their clients.

Rumoured changes to CGT rates, pension tax relief and tax-free cash failed to materialise, but there were notable announcements around ISAs, a new Pensions Tax Allowance for state pensioners and fresh tax incentives for entrepreneurs.

Income tax

The Chancellor confirmed that the personal allowance, higher rate threshold and additional rate threshold for earned income will remain as they are. It was also confirmed that the rates on dividends remain at 10.75%, 35.75% and 39.35% respectively. The dividend allowance is unchanged at £500 pa.

However, from 6 April 2027 the rate of tax on savings income and property income will increase and diverge from the earned income rates. These will rise by two percentage points more than previously announced. This means:

• The tax on savings income (e.g. deposit interest) will increase by four percentage points in each tax band. Savings income falling in the basic, higher and additional rate bands will therefore be taxed at 24%, 44% and 49% respectively. The increases will also apply to chargeable event gains on investment bonds which are taxed as savings income. The starting rate for savings (£5,000) and personal savings allowance (£1,000 BRT/£500 HRT) remain unchanged.
• The rates of tax on property income will be 24%, 44% and 49%, depending on whether such income falls in the basic, higher or additional rate bands.

The rises in tax on savings reinforce the importance of sheltering savings in ISAs where possible (or a pension for longer-term savings). Whilst the increases will apply to offshore bonds, it can be mitigated if withdrawals that trigger a taxable gain can be taken within unused allowances (e.g. the personal allowance or starting rate band).

Timely payments in Income Tax Self-Assessment

From April 2029, Income Tax Self-Assessment taxpayers will be required to make smaller regular ‘in year’ payments towards their annual tax bills. The aim is to collect tax closer to the point income is earned, instead of the current system of larger six-monthly payments on account and balancing payments.

Self-assessment will still be required to adjust for changes to forecast income with any correction being made through a balancing payment.

HMRC will provide more details of how this will work next year, along with new digital tools in 2028 to help taxpayers estimate their liabilities.

IHT and pensions – two technical changes

The government has confirmed two technical amendments to the pensions and IHT rules, taking effect from April 2027.

First, where certain conditions are met, a prospective personal representative – as well as an appointed personal representative – will be able to instruct pension scheme administrators to pay the IHT due directly to HMRC. This means the process can start before probate is granted.

Second, and equally welcome, pensions can be treated as a separate component when determining if the reduced 36% IHT rate applies. Broadly, this means that existing wills that leave more than 10% to charity will not have to be changed.

For the majority of individuals, their assets on death are included in the ‘general component’. Under the original proposals, pensions would also have sat within the general component, significantly increasing its value and causing the 10% gifting condition in many existing wills to fail.

Capital gains tax (CGT)

The Chancellor has rejected calls to align CGT rates with income tax. Gains remain taxable at 18% within the basic-rate band and 24% at the higher or additional rate. The annual CGT exemption will remain at £3,000.

Business asset disposal relief (BADR): lower lifetime limit

A reduction in the BADR lifetime limit, from £1 million to £500,000, will apply to qualifying business asset disposals after 6 April 2027. Formerly known as Entrepreneurs’ Relief, BADR taxes chargeable gains within this limit at 18%. The cut could increase the CGT bill for business owners selling their business by up to £30,000.

Founders’ relief: a new CGT relief

The chancellor announced Founders’ relief, a new CGT relief due to take effect on 6 April 2027. It aims to reward founders and early investors who build innovative, high-growth UK companies.

Qualifying share disposals will attract a 10% CGT rate, subject to a £10 million lifetime limit per individual. Any BADR claimed may reduce this limit.

Individuals must have held a 25% stake in a qualifying trading business for more than five years. The business must meet at least two of the following three tests:

• Turnover exceeding £10 million, with average annual growth of 25% over three consecutive periods.
• At least 15 employees, with average annual headcount growth of 25% over three consecutive periods.
• Research and development spending exceeding £1.5 million, with R&D tax relief claimed.

ISA changes reversed

The previously announced changes to cash ISA limits due to come into effect in April 2027 have been abandoned and the cash ISA limit will remain at £20,000 for all individuals over the age of 18. This also means the tax charge on stocks and shares ISAs holding cash or cash like assets will also not go ahead. Alternatively a new ISA incentive will be explored for people investing into a stock and shares ISA for the first time.

It was also announced that a new First Time Buyer ISA, due to launch in April 2029, will be introduced to replace the Lifetime ISA for new savers. The new account will pay a bonus of 25% on savings of up to £20,000 when the funds are used to buy a first home worth up to £450,000.

Existing Lifetime ISA holders will be able to continue to contribute to their savings under the current rules.

Pensions

State pensioners - keeping those on lower incomes out of tax

While there were no major changes to the pension tax rules, there was an announcement aimed at keeping those with incomes less than the full State Pension out of tax.

From 6 April 2027 full State Pension will increase to £13,036.40, greater than the personal allowance of £12,570, meaning those who rely solely on the State Pension would now have an income tax liability.

However, where an individual’s total income is equal to or less than the full new State Pension they will be entitled to the new pension tax allowance. This applies regardless of the source of the income – it won’t all have to be from the State Pension.

Total income will include private pensions, savings, dividend, and property income.

The allowance will be 20% on the difference between the personal allowance and their income, up to £13,036.40, thereby eliminating the tax charge. This equates to a maximum amount of £93.28.

If someone earns just over the new State Pension amount they will still receive the allowance, though it will be tapered off – for every £3 of income above the full State Pension, the pension tax allowance will reduce by £1. When someone earns £13,319 or more, they’ll not receive any of the pension tax allowance, and everything above the personal allowance will be taxable.

Scottish taxpayers will receive the allowance calculated using the 20% basic rate, rather than the Scottish starter rate.

The allowance will be applied automatically without needing to contact HMRC and will apply until April 2030 when the Government will review it.

State Pension triple lock

Though previously announced, the Budget also confirmed that the triple lock on the State Pension will remain in place for the remainder of this Parliament, to April 2029.

From April 2030, with the aim of sustainability, this will be adjusted so that the State Pension will rise by the highest of 2.5%, inflation (CPI), or the amount required to maintain its value relative to earnings as reached in April 2029.

Taxation of lump sum death benefits

The two-year rule has been removed, meaning that lump sum death benefits paid on death pre-age 75 will always be tax-free, so long as they are within the available lump sum and death benefit allowance (LSDBA). This applies to any such payments on or after 28 October 2026.

Previously, any lump sum death benefits paid more than two years after the scheme administrator first knew about the member's death would be subject to income tax where the member died before age 75.

Serious ill-health lump sums

HMRC will slightly soften the definition of terminal illness to make it easier for terminally ill individuals to access their pensions savings. The revised definition will be that death can reasonably be expected within 12 months.

Overseas registered medical practitioners will now also be allowed to provide confirmation of the terminal diagnosis.

Tax relief on pension contributions

No changes were announced.

Tax-free cash

No changes were announced.