2026 Autumn Budget
The Chancellor, John Healey, delivered his first Autumn Budget on 28 October 2026.
The Budget comes at an important time for pensions, savings, investments and estate planning, with several significant changes already scheduled to take effect over the next few years. This article looks at the key announcements affecting financial planning, with a particular focus on pensions, tax and inheritance tax.
Our takeaway
It was well trailed that this Budget would focus on immediate measures to ease the cost of living, and the cost of doing business for smaller firms, rather than big shifts in spending or taxation.
While people will no doubt debate the detail, help with energy bills, fuel costs and first-time buyer incentives will be broadly welcomed. Small businesses, particularly those in hospitality, may at least feel that their concerns are being heard, with some easing of the pressures they currently face.
However, there are longer-term trends emerging that the Government will need to consider in the years ahead. For example, the days of politically painless tax rises through perpetually frozen thresholds seem to be nearing an end.
For example, as the State Pension rises above the personal allowance, the idea of a 'stealth tax' somewhat loses its stealth. This leaves a complex set of arrangements to protect those on the lowest incomes from the somewhat odd scenario of having to pay back in taxes some of the money provided by the state as a benefit.
Income tax
There were no changes to the tax bands or tax rates in the ‘rest of the UK’ or to the personal allowance.
It was announced in last year’s Budget that the personal allowance will stay at £12,570 and is set to remain frozen until 2031. Additionally, it had been announced, that the income tax thresholds for the UK (excluding Scotland) would also be kept unchanged until April 2031. This means:
- Basic tax rate 20% on first £37,700 over the personal allowance.
- Higher rate 40% on earnings over £37,700 plus personal allowance.
- Additional rate 45% on earnings over £125,140.
The rates of income tax for Scottish taxpayers will be announced in the Scottish Government’s budget on 3 December 2026.
A new tax allowance, the Pension Tax Allowance (PTA), will be introduced which means those who have reached the state pension age (or will do within the tax year) with income at or under the value of the full new State Pension (£13,036.40 in tax year 2027/28), will not start paying income tax because of increases to the State Pension in this Parliament. The PTA will apply for the 2027/28, 2028/29 and 2029/30 tax years with the position beyond 2030 being considered nearer the time. Eligibility for the PTA is based on total income, regardless of the source of that income, and the value of the PTA is calculated by applying the basic rate of income tax (20%) to the difference between the full new State Pension and the personal allowance. For those with incomes just above the value of the full new State Pension, the allowance will be gradually withdrawn through a taper.
National Insurance
It had previously been announced that National Insurance bands for employers and employees would be frozen until 6 April 2031. There were therefore no changes to National Insurance rates or bands, other than an increase to the lower earnings limit from £129 to £133 a week for the 2027/28 tax year. The lower earnings limit is the minimum amount an employee needs to earn for their earnings to count towards their National Insurance record, even though they do not actually pay National Insurance at this level.
A call for evidence has been published on voluntary National Insurance contributions and is an HMRC review of whether the voluntary National Insurance contribution system remains fair, clear and sustainable, particularly given the relatively low cost of buying qualifying years compared with compulsory National Insurance contributions. It considers who uses voluntary National Insurance contributions and why, how they interact with National Insurance credits, whether current pricing and eligibility rules produce fair outcomes, the risk of people paying contributions that provide little or no benefit, and whether guidance supports informed decisions. It also examines partial-year contributions and, following recent restrictions for people abroad, whether individuals paying voluntary National Insurance contributions from overseas have a sufficient connection to the UK. Crucially, the call for evidence does not propose specific policy changes; the responses are intended to inform the Government's consideration of possible future reforms.
Pensions
Allowances
There were no changes to the:
- Lump sum allowance, currently £268,275
- Lump sum and death benefit allowance, currently £1,073,100
- Annual allowance, currently £60,000
- Money purchase annual allowance, currently £10,000
- Tapered annual allowance, currently applies when an individual has ‘adjusted income’ over £260,000 and 'threshold income' of more than £200,000.
Death benefits
6.243 HM Treasury - 2026 Budget
Before today, death benefits paid where the individual died before age 75, had to be paid within two years starting on the date on which the scheme administrator first knew of the individual’s death or, if earlier, the day when they could first reasonably have been expected to know of it, else they would be subject to income tax on the recipient. The Government has said it ‘will remove the two-year rule so that beneficiaries will no longer be taxable solely because tax-free pension and lump sum death benefits are paid more than two years after the member’s death. This will apply to any payments made on or after 28 October 2026 and will be introduced through Finance Bill 2026/27’.
Inheritance tax on pensions from April 2027
1.27 Overview of tax legislation and rates (OOTLAR)
The government will introduce legislation in Finance Bill 2026/27 to allow a prospective personal representative to direct pension scheme administrators to pay the inheritance tax due to HMRC when certain conditions are met. The legislation, currently, only allows a confirmed personal representative or beneficiary to do this, from April 2027.
Currently, when you pay 10% or more of your estate to charity, the inheritance tax rate changes from 40% to 36%. The government will also introduce legislation, taking effect from 6 April 2027, allowing those administering an estate to decide whether notional pension property should be included in the ‘general’ component of the estate or as a separate component when calculating whether the estate qualifies for the reduced rate of inheritance tax where part of the estate is left to charity.
Guided Retirement and Retirement Collective Defined Contribution pension schemes
6.241 HM Treasury - 2026 Budget
The government will make changes through a future Finance Bill to support the consolidation of defined contribution schemes and the introduction of the Guided Retirement framework and retirement-only collective defined contribution pension schemes. Legislation will also change the conditions under which individuals can retain their protected pension age or lump sum protection when transferring pension rights between schemes.
For retirement-only collective defined contribution schemes, the changes will:
- allow individuals who start receiving a retirement-only collective defined contribution pension to convert it to a drawdown pension within a specified period, where the scheme offers this option,
- amend the benefit payment rules so they work as intended for retirement-only collective defined contribution schemes, and
- allow transfers from drawdown funds into retirement-only collective defined contribution schemes.
Definition of terminal illness
6.242 HM Treasury - 2026 Budget
The government will change the definition of terminal illness to make it easier for terminally ill individuals to access their pension savings and allow registered medical practitioners overseas to provide the required medical evidence. The changes will be introduced through the Finance Bill 2026/27.
Collecting tax due on excess lump sum death benefits
6.244 HM Treasury - 2026 Budget
The government will change how tax is assessed and collected where a deceased individual’s lump sum and death benefit allowance has been exceeded to provide greater certainty for beneficiaries. The changes will be introduced through the Finance Bill 2026/27.
State pensions
The State Pension remains an important part of retirement planning.
A significant change to State Pension policy had already been announced outside the Budget. The existing triple lock will remain in place until April 2029, meaning the State Pension will continue to increase each year by the highest of 2.5%, inflation or earnings growth.
From April 2030, the government intends to move to an adjusted triple lock. Under this approach, the State Pension will increase by the higher of inflation or 2.5%, with an earnings adjustment where needed to prevent its value falling behind earnings.
Savings and investments
Individual savings account
6.248 HM Treasury - 2026 Budget
The £12,000 cap on subscriptions to cash ISA announced in the last Budget has been scrapped and will not come into force from April 2027.
Therefore, it will still be possible to pay up to £20,000 into a cash ISA from April 2027.
6.239 HM Treasury - 2026 Budget
The Chancellor talked about a new first-time buyer ISA being set up to reward first-time buyers. This was first announced in the Autumn Budget 2025 and replaces the existing Lifetime ISA. It has already been consulted on with responses being published today. The first-time buyer ISA will allow contributions of up to £4,000 a year to be made with a 25% government bonus and no upper age restriction. The bonus will be paid on the value of the account balance when funds are withdrawn for a qualifying first home purchase, up to the value of £450,000, so avoiding the need for any withdrawal charge.
6.240 HM Treasury - 2026 Budget
From 29 October 2026, Lifetime ISA funds will be allowed to be withdrawn for purchases over £450,000, which otherwise meet the qualifying rules, with a reduced withdrawal charge of 20%, ensuring the value of individual contributions is protected if the value of the property is above the price cap. Currently, the penalty is 25% for any property purchase where the property costs £450,000 or more. The charge for unauthorised withdrawals will remain at 25%.
It has also been announced that there will be a new ISA incentive. The government will work with industry in developing a new ISA incentive for people investing in a stocks and shares ISA for the first time.
The government will strengthen the compliance framework for ISA managers. From 6 April 2028, HMRC will be able to suspend non-compliant ISA managers and there will be new penalties for breaching ISA regulations, including points-based penalties for failures to submit required ISA reports and returns.
Tax on savings and investments
Savings Income Tax
From 6 April 2027, savings income tax rates were due to increase by two-percentage points. A further two percent increase was announced from the same date meaning the rates will now be:
- 24% savings basic rate
- 44% savings higher rate
- 49% savings additional rate.
This applies to the whole of the UK.
Dividend tax
As announced in the last Budget, from April 2027, dividend tax rates are due to increase by two percentage points to:
- 10.75% dividend ordinary rate
- 35.75% dividend upper rate
- 39.35% dividend additional rate.
The dividend allowance remains at £500. It was announced in this Budget, that there would be no further change to dividend tax.
Inheritance tax
There is no change to any IHT rates and factors for next tax year. This means that the IHT rate (for estates) and nil-rate band remains at 40% and £325,000, respectively.
The government will amend the IHT rules for liabilities relating to trust property. The changes will clarify when liabilities properly incurred by trustees can be taken into account when valuing settled property, align their treatment with personal liabilities, and extend existing debt-deduction restrictions and anti-avoidance rules. In particular, the changes aim to prevent certain liabilities funded using value originating from a beneficiary's own estate from reducing the IHT charge.
The changes will apply to deaths and other chargeable events occurring on or after 28 October 2026 and will be introduced through the Finance Bill 2026/27.
National minimum wage/living wage
From 1 April 2027, the national living wage will increase by 3.9% from £12.71 to £13.21 an hour. The national minimum wage (for 18 to 20 year olds) will also increase by 3.9% from £10.85 to £11.27 an hour.
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.