Article last updated 24 February 2026.
Many households are paying more tax, even when their spending power has not increased. A major factor is fiscal drag. Income tax bands are frozen until at least the 2030/31 tax year. As wages rise, more people are pushed into higher tax bands, even though inflation has reduced the real value of their income. The UK has also been running budget deficits for decades. The effects of the pandemic, alongside rising interest costs on government borrowing, mean tax revenues now play an even larger role in balancing the books.
Pensions remain one of the most effective long-term financial planning tools. They also attract regular headlines. While recent Budgets
introduced fewer changes than expected, two important adjustments are scheduled:
Despite these upcoming changes, one principle was emphasised: never make irreversible pension decisions based on rumours. For example, rushing to take your 25% tax-free lump sum because of the fear that allowances might change. Taking money too early can reduce the eventual tax-free amount available or bring funds into your estate sooner than intended.
Common pitfalls include:
Changes to inheritance tax rules mean more people are reviewing their estate plans. Two updates matter most:
Avoid acting too early. Moving assets now could draw them into the estate sooner than needed. Many people also overestimate their inheritance tax exposure. Depending on circumstances, couples may pass on up to £1 million tax-free.
For those with a likely liability, effective planning often comes down to simple steps:
A number of tax allowances and rates have changed significantly in recent years:
This makes tax-efficient accounts or wrappers more important than ever:
A family of four could shelter £58,000 a year using ISAs alone, and significantly more with pensions.
These three key principles were highlighted:
Venture capital trusts (VCTs) and enterprise investment schemes (EIS) remain part of the landscape, though VCT income tax relief will fall from 30% to 20% in the next tax year. These investments are suitable for a minority of people. They carry high risks and should never be chosen solely for tax reasons.
The most important message is simple: start early, not in March. Planning ahead allows you to:
Early planning also gives any investments more time in the market and more opportunity to grow.
This information is based on our understanding of HMRC tax rules in the UK. Tax treatment depends on your individual circumstances which could change.
If you would like to review your financial plan and explore ways to improve your tax efficiency, please contact your usual Rathbones adviser or complete our enquiry form below.
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