Autumn Budget 2025

The part of an employee’s salary that is sacrificed and converted into an employer pension contribution is included within the cap. Normal employer contributions, in other words - non sacrificed ones - are not in scope of the cap and will continue to be free of National Insurance contributions.

It would be prudent for impacted employers to seek legal advice when reacting to this change as this area can be complex.

The OBR, in its Fiscal and Economic Outlook 2025, noted:
“It would also be possible to formally replicate salary-sacrifice through an agreement to reduce wages and increase employer pension contributions. However, this behaviour would be constrained by interactions with Operational Remuneration Agreement (OpRA) rules and employment law, meaning that such reductions would need to be agreed with the entire workforce, so this is to be a widespread response.”

Only where a director’s actual salary is sacrificed and converted into an employer pension contribution will it fall under the cap.

Employer contributions that are not made from sacrificed salary remain exempt from corporation tax. These will continue to qualify for corporation tax relief under the “wholly and exclusively” rules and will also remain exempt from employer National Insurance.

From April 2026, the basic and new State Pension will rise by 4.8% in line with earnings growth. This will bring the full new State Pension close to the income tax threshold of £12,570. By April 2027, it is expected to exceed the Personal Allowance.

The state pension is paid without tax deducted at source, even though it counts as taxable income. If a pensioner has other income (such as a private pension or employment), HMRC typically adjusts the tax code on that other income to collect the tax due on the state pension. Where this isn’t possible, such as when the state pension is the only income, HMRC uses a process called ‘Simple Assessment’, issuing a tax bill after the end of the tax year if the pension exceeds the personal allowance.

To reduce administrative burden for pensioners, the government announced in the budget that from 2027–28, pensioners whose only income is the state pension would not receive tax bills via Simple Assessment. The government is exploring how to implement this and will provide more detail next year.

However, in a recent television interview, Rachael Reeves said that people in that position won’t be taxed at all in this parliament.

We will share further guidance when the position becomes clearer.

Not at all. These changes simply reinforce the importance of making full use of tax allowances – whether that’s the pension annual allowance, ISA allowance or savings and dividend allowances.  

A general investment account (GIA) remains a core planning product. It allows you to use your client’s dividend allowance, personal savings allowance, and CGT annual exempt amount.

In addition, CGT rates remain comparatively low, as does the basic rate dividend rate. The amount placed into these accounts is still debated. For higher and additional rate taxpayers, it’s likely that GIAs will be used in the shorter term to fund several years’ ISA allowances only. For basic rate taxpayers they provide good net returns.

Both onshore and offshore gains are savings income. From 6 April 2027, both onshore and offshore bonds will be subject to an increased percentage

For onshore bonds, the internal life fund rate will increase to 22%, with the tax treated as paid by bond holders (the tax credit) also aligning to 22%.

At first glance, this makes the gross roll-up benefit of offshore bonds appear more attractive, as the higher onshore rate creates additional ‘drag’ from 2027. However, on surrender, offshore gains will still be taxed at 22%, 42% or 47%, while onshore gains will be taxed at 20% or 25% for higher and additional rate taxpayers after the tax credit.

Gross roll-up takes time to provide a better net return for most taxpayers- – often 20 years or more compared to an equivalent onshore bond.

Offshore bonds remain a strong option for non-taxpayers or those whose residency may change during the investment term . Taxpayers liable for tax on the gains could see their gross returns getting dampened by higher income tax rates. 

Tax is clearly one factor to consider in any recommendation. Other areas include provider service, online capability, ease of use, jurisdiction, policy holder protection, platform integration, consolidation with other investments, and of course, pricing.  

Yes, where dividends are considered qualifying ABGH  distributions for the insurer they are exempt from further taxation.

As we expected, the cash ISA limit is reducing to £12,000 for under 65s from 6^th April 2027. The stocks and shares limit will remain at £20,000.

After the budget HMRC shared a newsletter which confirmed the three key changes that will apply to stocks and shares ISAs from implementation of the lower limit: 

1. Transfers from stocks and shares to cash will not be allowed. 
2. Interest earned on cash balances will face a tax charge – previously we had this at basic rate, so we assume this will be 22%. 
3. There will be restrictions on holding cash-like funds within a stocks and shares ISA.  

At this point the announcement just confirms that interest earned within a stocks and shares ISA will be liable to a charge. There is no suggestion currently there will be ’an acceptable level of cash’ where this charge will not apply but we await the detail.

At this stage the announcement confirmed:

The government will consult on introducing a new, first-time buyer only product that will provide the bonus when a person uses it to buy a house, removing the need for a withdrawal charge and giving savers flexibility in case their circumstances change.

It looks like the dual-purpose product - for first-time home purchase and retirement savings - will no longer be available. Instead, the new product will focus solely on buying a home. Removing the withdrawal charge is positive, and the way the bonus is applied feels much closer to the Help to Buy ISA, where it was claimed at the point of completion.