1. Frozen tax thresholds: the quiet squeeze on rising earners
The freeze on the personal allowance for tax-free income and higher‑rate tax thresholds until 2030 means ‘fiscal drag’, where more people will be pulled into higher tax bands as salaries rise, will continue.
What this means for you
How to prepare
2. Pensions: more valuable, but more complex
Pensions are one of the long‑term tax-efficient planning tools available to you. But upcoming rule changes mean the way you use them may need to evolve.
From April 2027, most pension funds will become subject to inheritance tax (IHT).
What to do now
- Treat pensions primarily as retirement funding rather than a legacy‑planning structure.
- Consider front‑loading contributions while salary sacrifice still provides a benefit.
- Review and update beneficiary nominations well ahead of the rule changes.
- Supplement pensions by using individual savings accounts (ISAs) and general investments alongside them.
3. Inheritance tax: why earlier planning now matters
Even if IHT feels like a future concern, frozen allowances and reformed reliefs mean it’s sensible to think earlier about how your estate may grow over time.
Key changes
- The £325,000 nil‑rate band and £175,000 residence nil‑rate band are frozen until at least 2030.
- From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will change:
- Only the first £1 million of qualifying assets receives 100% relief.
- Amounts above this receive 50% relief.
An updated proposal would increase the combined allowance to £2.5 million, although legislation is still in development.
Why this matters in your 30s and 40s
As property and investment values rise, more estates risk becoming taxable. If you own or are planning to build a business, early decisions on share structures or trusts may protect future relief.
4. Business owners: preparing early for relief changes
From April 2026, shares that previously qualified for full BPR may instead fall under caps or reduced relief.
What to consider now
- Review shareholder agreements and explore whether restructuring would help maintain relief.
- Look at tax‑efficient ways of taking profits, such as balancing salary and dividends, especially while thresholds remain frozen.
- Consider Enterprise Investment Schemes (EIS), Seed Enterprise Investment Schemes (SEIS) and Venture Capital Trust (VCT) investments, which continue to provide attractive tax advantages. It’s also important to note that these are high-risk investments and you could lose all your money.
- If you’re unsure about whether these schemes would be appropriate for you, speak to a financial planner.
5. Use your remaining tax‑free allowances before 5 April
Despite several allowances tightening, many remain valuable – particularly when used every year.
Tax‑efficient wrappers
Pensions
- Up to £60,000 annual allowance (subject to earnings)
- Ability to carry forward unused allowance from the past three years
6. Rethink your savings structure: a balanced three‑pot approach
With pension rules tightening and IHT allowances frozen, a balanced structure can give you more control and flexibility.
The three‑pot model
- Pensions – Your long‑term retirement engine
- ISAs – Flexible, tax‑free and accessible
- General investments – Useful for long‑term compounding, though these will potentially be subject to capital gains tax. You may need to think about the best ways to manage any capital gains.
This three-pot combination spreads risk, balances tax efficiency and helps you adapt as future rules evolve.
Next steps: review your financial plan
The tax environment has changed rapidly – and for people building wealth today, the impact can feel immediate. By understanding what’s changing, making full use of your allowances and balancing your savings across different tax wrappers, you can save more today to continue growing and protecting your wealth tomorrow.
If you’d like personalised guidance on how these changes could affect your financial plan, we’re here to help. Reach out to your usual Rathbones adviser or fill out our enquiry form below.
