The tax changes coming in next year – and how to plan for them now

Speculation is already mounting about what could be in the next Budget, due to be delivered next month – but some policies announced at the two previous Budgets are still to be be introduced. A bumper set of changes – affecting pensions, taxes and and savings rules – are set to come into force in April 2027. Financial advisers say households should focus less on what might be announced on 28 October, and more on changes that are due to come into force just seven months from now. Shorts Here, The i Paper looks at the key changes that are coming in spring, and what families can do now to mitigate their effects. Pensions will enter the IHT net From 6 April 2027, most unused pension funds and death benefits will be included in a deceased person’s estate for Inheritance Tax (IHT) purposes. For families with significant pension wealth, this could turn traditional retirement planning on its head. IHT is currently charged on the estate of someone who has died. It is charged at a rate of 40 per cent on estates valued above the nil-rate band of £325,000, but there are various other allowances too, which mean some married couples owning property may not owe any IHT unless their estate is worth more than £1m. Experts say that wealthy pensioners often don’t touch large portions of their pensions before they die, as they can be passed on tax-free. Dave Stirling, director of financial planning firm Mint Wealth, said that this approach might change for many – who may opt to spend or gift money instead – after the rules change. “My advice is blunt, you’ve got to spend it, gift it, or insure against it. Annuities are no longer a dirty word and may come back into planning more regularly.” Stirling suggests gifting money before death as many gifts are exempt from IHT. You can give gifts or money up to £3,000 a year and this is exempt from IHT, and for amounts larger than this, no tax is due if you live for seven years after giving the gift (a lower rate is due if you die between three and seven years after giving it.) Some families have opted to take out life insurance policies – which payout upon to death – to fund future inheritance tax bills, as Stirling hints at, but it’s usually worth considering financial advice if you are thinking about doing this. An annuity is a type of annual payment you can buy with your pension pot. Rachel Vahey, a pensions expert at AJ Bell, explains: “If you use some of your pension to buy an annuity, the inheritance tax position depends on the options you choose. For example, if you choose for an income to continue to a spouse or another person for life, a joint annuity, that ongoing income will not be included. “However, a guaranteed period could count. This is where annuity payments continue for a set time, such as 10 years. Value protection, where a lump sum may be paid based on the original annuity purchase price less income already paid, could also be included.” Savings interest will be taxed more At the moment, interest earned from savings accounts is charged at your normal income tax rate, once you have earned more than a set amount – known as the personal savings allowance. The rates and allowances can be seen below. From April 2027, tax rates on savings interest will rise by two percentage points. This was announced at the November 2025 Budget. They will increase to 22 per cent for basic-rate taxpayers, 42 per cent for higher-rate taxpayers and 47 per cent for additional-rate taxpayers. Emma Sterland, chief financial planning director of Evelyn Partners, explained: “The obvious way to avoid savings being taxed altogether is to save in a cash ISA.” You can put £20,000 in cash ISAs each year – though the allowance is set to be lowered, which we explain in more depth below – and all the interest is tax-free. Other than that, they function in a similar way to other savings accounts. But Sterland says there were other things that can be done too. “Couples can make use of two sets of allowances for both ISAs and savings interest. Where they are married or in a civil partnership, transfers of cash or other assets between spouses will not incur any tax charges. If they are to hold taxable savings, then it can make sense for the deposits to be held by whichever partner is subject to a lower rate of tax, to reduce the family tax burden,” she said. But she warned: “When you transfer cash or investments to your partner or spouse, they become the fully entitled legal owner, so trust is vital.” Another option for savers is premium bonds. You can put £50,000 a year in these – which are essentially a government-backed prize draw, and any winnings are tax-free. Sterland added: “The average prize rate is currently quite attractive at 4.35 per cent, although this is not a guaranteed return, and could be exceeded or lagged. There is no guarantee that any prizes will be won.” Cash ISA rules will change An ISA is a UK product that lets you save or invest up to £20,000 a year while keeping all your interest, income, and profits completely tax-free. The money can be put into investments – known as a stocks and shares ISA – or cash savings. At the moment, the £20,000 can be split however you like between these different accounts, but that is set to change. The overall £20,000 ISA allowance remains, but from April 2027 the amount that under-65s can put into a cash ISA will be restricted to £12,000. The remaining £8,000 each year will have to go into a stocks and shares ISA. For people who want to keep large sums in cash, that makes it more important to think about how their ISA allowance is divided between cash and investments. “This could be an opportunity for those who hold a lot of cash savings to investigate whether some of that cash could be put to work in investment funds, where returns over the long term have fairly consistently and for many decades outstripped cash savings growth,” explains Sterland. Landlords face another tax rise Like with savings, income tax rates on property rental profits will increase by 2 percentage points across all tax bands starting on 6 April 2027 in England, Wales, and Northern Ireland. Scotland retains its own tax system. Sterland says there are things you can do to prepare for this if you are a landlord “such as transferring ownership between spouses or incorporating portfolios into company structures”, but that these are complex and may require advice. “”Some property investors may simply decide to sell up and redeploy capital elsewhere,” she adds.