It’s always a big occasion when governments set out their financial plans and decisions on tax and spending for the coming period. But the Autumn Budget taking place on 26 November feels like an even more significant event than usual – not least for savers and investors.
High borrowing costs and low growth have left the chancellor needing to raise an estimated £30bn from tax and spending measures that may have far-reaching implications – positive as well as negative – for millions. Chancellor Rachel Reeves has declared that she is weighing up both tax rises and spending cuts, including potential increases to income tax.
Anyone with pensions, savings and investments is likely to be affected in one way or another. So, what measures should you keep an eye out for? Here’s some of the most realistic options relevant to savers and investors.
Cash ISA cut
The annual tax-free ISA limit is currently £20,000, meaning you can slot away a total of £20,000 across cash, stocks and shares, Lifetime ISA (LISA) and Innovative Finance ISA (IFISA). But while the government is very unlikely to lower the overall limit, it is looking at capping the cash ISA part of the annual allowance as a way of boosting the money flowing into stocks and shares ISAs and doing more to support UK investments.
It has considered lowering the limit to £4,000, but it’s more likely to retain a more generous limit of £5,000 or £10,000. Any such reduction would likely take effect from the beginning of the 2026/27 tax year, on 6 April 2026.
Another capital gains tax (CGT) hike
CGT is charged on any gains on the sale of investments not in an ISA (and assets including second homes and personal possessions) above the tax-free limit. It was increased in the 2024 Autumn Budget, with the rate at which it is charged rising from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers.
That might suggest further changes are unlikely, but CGT remains an obvious option, not least because it represents a way to increase tax on wealth and assets as well as (or instead of) income. It’s long been suggested that the government could align CGT and income tax rates. This would see the former rising to 45% for the highest earners, closing the gap between taxes on earned income and those on capital.
Another option is to remove or limit exemptions such as that for the gains from selling a primary residence. For instance, higher value properties could be taken out of that exemption and face paying CGT on a slice of the gains from a sale. One way to mitigate any changes that occur is to take advantage of the bed-and-ISA rules.
Reduced tax-free cash
At present, savers can take 25% of their pension pot – up to £268,275 – from age 55 without paying income tax. This derives from a policy originally designed to help borrowers pay off their mortgage when they stopped working. However, it is often argued that the lump sum should be capped because the current level favours the wealthy.
One option is to cut the tax-free pension lump sum to £100,000, which could affect around one in five retirees. The speculation has already prompted some savers to withdraw – or consider withdrawing – their tax-free cash in a bid to get ahead of possible changes. The same happened last year, only for the speculation to prove unfounded. But rushing to take your tax-free cash could be a bad idea.
Pensions tax relief cut
This one is reeled out before every Budget and it seems an obvious target, given the cost to the government of funding what’s a tax break that primarily benefits more affluent taxpayers. Currently, pension contributions attract relief at your highest marginal rate. This means that for every £100 contributed, basic rate taxpayers only have to pay in £80, higher rate taxpayers £60 and additional rate payers £55 (if you’re in Scotland it’s the Scottish income tax levels that apply).
It’s been suggested for several years that tax relief could be cut to a flat rate of 20–30% – good news for basic-rate taxpayers, but less so for higher earners. The IFS has said that while limited tax relief on pension contributions could raise significant funds, it would also be “unfair and distortionary”, while some claim it would disincentive pension savings. So, it’s a possibility, but a cut to tax-free cash is more likely.
Restricting salary sacrifice
Salary sacrifice is where an employee sacrifices part of their salary in return for increased employer contributions into their pension (or for other non-cash benefits, such as private medical insurance) and in doing so lower their taxable earnings, often with the aim of lowering their taxable earnings. In addition, both the employee and employer can save National Insurance on the salary sacrificed, as National Insurance isn’t charged on pension contributions paid by an employer.
Scaling back the ability to do this –- or even removing it altogether – could raise significant sums for the government without them needing to renege on their manifesto commitment not to increase income tax, national insurance or VAT). Any change would likely see a limit on the amount that can be sacrificed, a removal of the NI exemption, or even both.
A word of warning
It might be tempting to try reading the Chancellor’s mind and making changes ahead of the Budget, in a bid to gain some form of advantage. But while all of the above are certainly realistic options for Rachel Reeves, the actual plans will remain firmly under wraps until she presents her Budget on 26 November. Until then, everything you read about what may or may not be in the Budget is little more than speculation. If you’re not sure what to do, you may want to seek guidance from a financial adviser. The key is to ensure you are ready to act quickly should the rules change at any point.
