The aftermath of a Budget feels like the day after a wild party, where you find yourself picking through the wreckage, trying to work out what damage has been done.
In this Budget, there were plenty of announcements that could take a toll on your finances. However, there are also positive steps you can take to protect yourself from more tax.
This article isn’t personal advice. ISA, pension and tax rules can change, and their benefits depend on individual circumstances. However investments can rise and fall in value, so you could get back less than you invest. Remember, you can't usually access money in a pension until you're 55 (rising to 57 in 2028). If you’re not sure what’s right for you, ask for financial advice.
Income tax thresholds frozen – how to lower your tax bill
A major announcement was that income tax and National Insurance (NI) thresholds will be frozen for an additional three years – until April 2031. This change will effectively drag more people into paying income tax as they get pay rises.
A ‘fiscal drag’ often dubbed a stealth tax as income tax rates aren’t technically increased, which would breach Labour’s manifesto.
One of the most effective ways to control the income tax bill on your salary is by making contributions to a pension like a Self-Investing Personal Pension (SIPP) – alongside its usual purpose of saving for retirement, and being free from UK income and capital gains tax.
If you make contributions by salary sacrifice, you could be worried by news that the NI relief will be capped from April 2029, so it only covers the first £2,000 of contributions.
However, you have until then to take advantage of the system as it stands, so you may want to boost contributions.
After the change, you’ll still be able to get tax relief at your highest marginal rate up to your annual allowance, both through salary sacrifice and through personal pensions and SIPPs, so pensions will remain an incredibly tax-efficient option.
Savings tax rises and Cash ISA allowance cuts – what can you do?
The best way to ensure you don’t pay income tax on savings is to hold them in a Cash ISA.
But Reeves announced that the Cash ISA allowance will be cut to £12,000 from April 2027 for those aged under 65. There will be new, separate rules that allow over 65-year-olds to still save or transfer £20,000 a year into Cash ISAs though.
However, if you’re under age 65, you can still save up to £20,000 in the current tax year (and in 2026/7) before the allowance changes.
Another piece of bad news was that any interest earned outside of a tax wrapper that takes you over your personal savings allowance, the tax rate on those savings will rise from April 2027.
Taxable savings balances will then be taxed at 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers. If you’re married or in a civil partnership, you can reduce any liability by sharing savings so you both take advantage of your ISAs and tax-free allowances.
Dividend tax rates increased – consider a Stocks and Shares ISA
When your income rises above a tax threshold, it can also affect the rate of capital gains tax (CGT) and dividend tax you pay.
To make matters worse, from April 2026, the dividend tax rate will be hiked from 8.75% to 10.75% for basic rate taxpayers and 33.75% to 35.75% for higher rate taxpayers.
To shield yourself from the tax hike, you can invest within a Stocks and Shares ISA, which is sheltered from UK income tax, including dividend tax and, capital gains tax. If you have existing investments outside an ISA (and the available allowance) you can use Share Exchange (sometimes called a Bed and ISA) to move them into the ISA and shelter them from tax.
You can sell assets outside an ISA or pension, keeping in mind your £3,000 CGT annual allowance when you sell, and buy them back again in an ISA or SIPP wrapper all in one instruction. From here they’re sheltered from future UK income tax and CGT.
Before using Share Exchange make sure you look at all the considerations like charges.
Inheritance tax thresholds frozen – speak to a financial adviser if you’re unsure
Another tax hike in the Budget is the freeze on inheritance tax thresholds being extended for another year – to 2031.
If you’re worried about inheritance tax, it might make sense to consider whether you can give gifts during your lifetime to cut your tax bill.
However, before you start, consider exactly how much you can afford to give away. It can be helpful to talk to a financial adviser.
There’s a lot to consider, but a comprehensive post-Budget clear up should help protect you from the worst of the tax hikes and should stand you in good stead for when the next Budget strikes too.
Our advisers can help you with planning for the Budget. Understand how inheritance tax on pensions and changes to tax relief could impact you.