This week, the Chancellor presented a new budget that introduces several changes that may impact personal finances. Here are some strategies to consider for managing these changes.
Firstly, the annual limit for payments into an Individual Savings Account (Isa) remains at £20,000, but significant alterations are anticipated in April 2027. For individuals under 65, contributions to cash Isas will be capped at £12,000, necessitating that any surplus goes into a stocks and shares Isa. Those over 65 will still have full access to the £20,000 limit for cash Isas. Before these changes take effect, individuals can maximize their contributions and potentially benefit from favorable interest rates, as some institutions are currently offering competitive rates for cash Isas.
Secondly, the new budget includes a raise in income tax on dividends commencing in April 2026. The ordinary rate will rise from 8.75% to 10.75%, and the upper rate will increase from 33.75% to 35.75%. Taxpayers can avoid these increases by transferring shares into an Isa, a process known as “Bed & Isa.” This entails selling and repurchasing investments within the Isa framework, which shields future earnings from dividend and capital gains taxes.
Thirdly, changes to salary sacrifice schemes will be implemented starting in April 2029. Contributions above £2,000 will no longer be exempt from National Insurance contributions. Employees may wish to consult their employers regarding adjustments to their pension contributions or to explore additional salary sacrifice options.
Additionally, the budget has extended the freeze on inheritance tax thresholds until April 2031. Individuals might consider making financial gifts while alive, as there are tax-free allowances available for gifting.
Lastly, a new “mansion tax” will apply to properties valued over £2 million, starting in 2028. Owners of these properties may need to assess their next steps, including potential downsizing or other financial strategies to mitigate the additional costs.
These budget alterations could lead to significant shifts in how individuals manage their savings, investments, and overall financial planning.
Source: https://www.theguardian.com/money/2025/nov/29/beat-the-budget-a-five-point-action-plan-to-help-you-manage-your-cash