Now that the dust has settled on this years Budget, time to check through the small print and see what actual difference it will make to your savings, investments and pensions.
Savings and Investment
Individual Savings Account (ISA)
✅ What’s staying the same
- The overall annual ISA allowance remains at £20,000.
- Annual subscription limits for other ISA-related accounts remain unchanged: for instance, Junior ISA stays at £9,000 per year, and Lifetime ISA (for now) remains at £4,000 per year.
🔄 What’s changing — Cash ISA cap
- From 6 April 2027, the maximum you can put into a Cash ISA each tax year will be reduced from £20,000 to £12,000 — but this applies only to savers under age 65.
- Those aged 65 or over get to keep the full £20,000 Cash ISA allowance.
- Because the overall ISA cap remains at £20,000, for savers under 65 this effectively means £8,000 of their annual ISA contribution will need to go into non-cash ISAs (e.g. a Stocks & Shares ISA) if they want to make full use of the annual allowance.
📉 Motivation & Government’s Rationale
- The change is part of a push by the government to encourage more money to flow into investments (e.g. stocks and shares) rather than staying in cash — with the intention of supporting long-term economic growth and boosting investment in UK businesses.
- The government also announced plans to launch a consultation in early 2026 on a new, simpler ISA product to support first-time buyers, which, once introduced, will replace the Lifetime ISA.
⚠️ What It Means for Savers
- If you are under 65 and rely on Cash ISAs for savings, this reduces how much you can shelter in tax free cash. You’ll need to consider whether to move more into Stocks & Shares ISAs (accepting greater risk), or spread savings differently.
- Over 65s retain more flexibility with cash.
- The changes could push more people toward investing, which may offer higher long-term returns — though with greater risk compared to cash savings.
- With a new ISA product potentially on the horizon (for first-time buyers), there may be new opportunities depending on your circumstances (e.g. saving for a home).
📌 Key extra points / caveats
- The overall ISA allowance of £20,000 per year remains unchanged.
- From April 2027, under-65s will be restricted to a maximum of £12,000 in cash ISAs each tax year.
- Because of that cap, if an under-65 saver wants to use the full £20,000 allowance, at least £8,000 must be invested into a stocks-and-shares ISA (or other qualifying non-cash ISA.)
- For savers aged 65 or older, nothing changes — they retain the ability to put the full £20,000 into a cash ISA if they wish.
- The limits for Lifetime ISAs and Junior ISAs (and Child Trust Funds) remain unchanged.
Savings and Dividend Tax
For those who rely on income from savings interest and share dividends there are increases in tax coming in from 6th April 2027 for savings and 6th April 2026 for dividends.
📊 1. Savings Income Tax (Interest on cash savings)
📅 From 6 April 2027
- The tax rates on savings income (interest from bank accounts, building society accounts, etc.) will increase by 2 percentage points across all income tax bands.
New tax rates on savings income from April 2027
| Tax band | Current rate (pre-change) | New rate (from 2027) |
|---|---|---|
| Basic rate | 20% | 22% |
| Higher rate | 40% | 42% |
| Additional rate | 45% | 47% |
💡 The Personal Savings Allowance remains the same (e.g., £1,000 for basic taxpayers; £500 for higher taxpayers; £0 for additional rate taxpayers). Interest above the allowance is taxed at the rate relevant for your band, but now at the higher levels above.
🔎 This change does not affect ISA savings, which remain tax-free.
📈 2. Dividend Tax
📅 From 6 April 2026
The government will increase the tax rates applied to dividend income by 2 percentage points for basic and higher rate taxpayers.
Dividend tax changes from April 2026
| Tax band | Current dividend rate | New rate from 2026 |
|---|---|---|
| Basic rate | 8.75% | 10.75% |
| Higher rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
🔹 The Dividend Allowance, the amount of dividend income you can receive tax-free, remains at £500.
Pensions
🔄 What has changed under the 2025 Budget
The table below summarises the main changes affecting pensions. The State pesion will increase by 4.8% from next April. Please note the pension figures shown relate to the New State Pension. If you have the basic rate pension and elements of the State Earnings Related Scheme (SERPS) or the Graduated Pension scheme your figures will be different depending on the level of SERPS or Graduated pension you receive.
The main headline is that relief from National Insurance Contributions is going to be capped, limited to the first £2,000pa of contributions. Salary sacrifice works by an employer paying a pension contribution on an employees behalf rather than paying the employee the same amount as salary. The contribution is deducted from gross salary before income tax and national insurance are applied. This change means that national insurance will be paid on the sacrificed salary exceeding £2,000pa. The full income tax relief remains.
As the Personal Tax Allowance threshold continues to be frozen at £12,570, increases in the State pension and any annual enhancements to private pensions could push people into taxation amounts or mean they cross tax thresholds and pay higher rates.
| Area | Change / New rule | When it takes effect / details |
|---|---|---|
| State Pension increase | Full state pensions (new and basic) rise by 4.8% | From April 2026 — e.g. new state pension moves from ~£230.25/week to ~£241.30/week |
| Risk of pensioners paying income tax | Because personal tax thresholds remain frozen until 2031, the higher state pension may push many pensioners, who had only state pension income, over the tax-free allowance. | From 2027/28 (or when state pension and allowances cross the threshold) |
| Cap on pension “salary-sacrifice” contributions (NI benefit) | From 6 April 2029: only the first £2,000 of salary sacrificed pension contributions per year will be exempt from National Insurance contributions. Anything above that will incur NIC. | Affects people using salary-sacrifice schemes from April 2029 onward. |
| Index-linking of older protected pensions (pre-1997) | For pensions managed by the Pension Protection Fund (PPF) or under the Financial Assistance Scheme (FAS): where the original scheme allowed it, pensions will — from January 2027 — be increased with CPI inflation (capped at 2.5% per year). | From 1 Jan 2027 for eligible pre-1997 pensions. |
Thesevare the main Budget changes as they affect investments,savings and pensions. If you wish to review your situation in light of these changes please call Ken McNeil on 07590 828227 or e.mail ken@mcneilstevens.com
