A new tax year has just started but it is worth preparing for April 2027 because savers and investors will face more tax increases. Several tax changes have been introduced since the start of the 2026/27 tax year including higher dividend rates. While people may focus on using reliefs and allowances over the next 12 months a bigger change is coming in April 2027. From the start of the next tax year pensions will be included in estate calculations for inheritance tax. The cash ISA allowance will be restricted to £12,000 per year for people under 65 and tax rates on savings interest & property income will increase.
April 2027 may seem far away but there are benefits to preparing now. Antonia Medlicott who founded Investing Insiders said the next wave of tax changes risks catching many people off guard particularly around pensions and ISAs. The key is to review plans now rather than react later by checking balances across pensions and ISAs and taxable accounts and making full use of allowances while they last.
Pension inheritance tax changes Currently pensions fall outside a person’s estate when making inheritance tax calculations. This makes it easier to pass on wealth but from April 2027 unused retirement savings will be counted in the value of an estate. This could push the total above the £325,000 inheritance tax threshold. Jason Hollands who is managing director of Evelyn Partners said pensions have been highly attractive from an estate planning perspective. Individuals with sufficient alternative resources have often chosen to preserve pension wealth for as long as possible using it as a tax-efficient vehicle for passing assets to the next generation.
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From April 2027 this approach may need to be reconsidered. Anyone whose estate is likely to fall within the scope of inheritance tax should review their position carefully and seek professional advice. Pensions should no longer be viewed in isolation but as part of a broader estate planning strategy. Options include taking more from your pension while you can & making use of gifting allowances to ensure more money goes towards you and your loved ones rather than the taxman. Hollands suggested the changes also underline the importance of diversification across different tax wrappers. While pensions remain valuable it may be increasingly important not to rely on them exclusively.
ISAs continue to play a central role & for some investors offshore bonds may offer additional flexibility. These can be reassigned to a spouse or adult children or into trust without triggering an immediate tax charge although tax may arise on eventual encashment. When combined with trust planning they can help move future growth outside the estate subject to the usual rules. Shaun Moore who is a tax and financial planning expert at Quilter warned there are also practical consequences.
As pensions become part of the estate probate is likely to become more complex and time-consuming. Many households may want to respond by consolidating accounts and updating wills and putting lasting powers of attorney in place. These are not tax strategies but they can make a meaningful difference for families later on when simplicity and clarity matter most. 2. Reduced cash ISA allowance In an effort to encourage more people to invest the cash ISA allowance will be restricted to £12,000 from April 2027 for people under the age of 65.
That means this is the last tax year where those affected can use the full £20,000 ISA allowance entirely on cash ISAs. From next April only up to £12000 of the £20000 can be put in a cash ISA but the full amount can still be put to work on the stock market via a stocks & shares ISA. This will fundamentally change how many people use cash ISAs according to Moore. With only £12,000 available younger savers who want to make full use of the £20,000 allowance will be pushed towards stocks and shares ISAs.
That raises the importance of understanding risk and time horizons particularly for those who have relied on cash as a default rather than a choice. Medlicott added that using current allowances while they remain available has become more important. Savers should also reassess whether cash ISAs are still suitable for longer-term money or whether a mix with stocks & shares ISAs offers better flexibility. 3. Higher property & savings tax rates Income tax rates for savings and property income are set to rise from 6 April 2027 by two percentage points. This means the basic rate will increase from 20% to 22%.
The higher rate will increase from 40% to 42% and the additional rate will increase from 45% to 47%. That means savers need to monitor the amount of interest they are earning and consider using ISAs.The changes create another problem for landlords who will pay more tax on rental income after already dealing with the Renters’ Rights Act reforms & higher stamp duty costs. Hollands said that planning options in this area are more limited but may still be worth exploring.
One approach is to transfer ownership between spouses so that rental income is taxed at a lower marginal rate. Another option is to consider holding property within a corporate structure where profits are subject to corporation tax currently up to 25% rather than income tax. However incorporation is not straightforward and can trigger both capital gains tax and stamp duty so it is generally only suitable in specific circumstances. This typically applies to those with larger portfolios and a long-term investment horizon.
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