HW Fisher’s tax experts have shared their insights from today’s budget.
On the 2% rise to income tax on property and investments, Sam Dewes, Private Client Tax Partner, said:
“The landlord market has suffered from significant tax and regulatory changes over the last decade and there are a concerns about the knock on effect that an income tax rise of 2% could have for tenants, especially if the number of properties available to rent decrease due to landlords continuing to exit the market.
The rationale given for the tax increase on property and investment income is that it is not subject to national insurance, the top rate of which is 2%.
Investors will suffer as this income tax rise of 2% will apply to dividend income from April 2026, and to savings income from April 2027. Dividend income is typically subject to lower rates because the profits being paid out have already suffered corporation tax. It is likely that many companies will look to bring some dividends forward to pre-5 April so that they are charged at existing rates, perhaps giving the Chancellor a short term windfall.
The 2% increase will not apply to the top rate of dividends which is currently 39.35%, which will cause a sigh of relief from some of the wealthiest investors.”
On the changes to cash ISAs, Sam Dewes, Private Client Tax Partner, said:
“The Chancellor has announced that from April 2027 the annual amount that can be invested in cash ISAs will be restricted from £20,000 to £12,000 for under 65s.
The full £20,000 allowance for Stocks and Shares ISAs will be maintained.
This represents a significant commitment to boosting retail investment in the UK by encouraging savers to invest in stock and shares rather than cash.
Returns on ISA investments are tax free, meaning savers can accumulate income and gains without worrying about having to disclose these amounts on their annual tax returns. Whilst Chancellor hinted that savers could get better returns on their savings by investing in stocks and shares, financial literacy is key here due to the risks involved.
By preserving full cash ISA allowance for those aged 65 and over, the Chancellor seems to be accepting that in retirement some people are looking to ‘de-risk’ their investments.
Limiting the total ISA limit for cash ISAs is a return to the past. Up to 5 April 2014, the cash ISA limit was no more than 50% of the total amount that could be invested in an ISA.”
On the freeze to the income tax thresholds, Sam Dewes, Private Client Tax Partner, said:
“Today’s Budget has revealed that, as expected, the income tax bands and allowances will be frozen for a further two years until 2031, raising an estimated £8 billion.
The Government has accepted that, through wage inflation, more people will now be drawn into higher tax bands, or perhaps paying tax for the first time.
Whilst the Labour Manifesto pledged to not raise the rate of income tax, the stark reality is that more people are paying the higher rates of income tax today than they were in 2021 when the thresholds were last changed.
HMRC must ensure it has the resources to cope with the expected increase in taxpayers, such as pensioners, many of whom will now be expected to file tax returns for the first time.
As ever, it will be interesting to see to what extent taxpayers restrict their income so as not to fall into higher income tax brackets. This is particularly prevalent at the £100,000 level, where breaching the threshold comes with a number of negative consequences such as the incremental loss of the personal allowance, and the loss of certain childcare support payments.”
On the Mansion Tax, Sam Dewes, Private Client Tax Partner, said:
“Today Budget confirmed the introduction of the so called ‘Mansion Tax’, set to come into force from April 2028.
This will apply to properties worth more than £2million and is likely to apply to 100,000 properties.
As with most tax changes, there could be a behavioural response from taxpayers, such as accelerating downsizing, particularly amongst pensioners whose incomes have decreased while their property values have increased.
The annual charge for properties worth between £2m and £2.5m will be £2,500, increasing to £7,500 for properties worth £5m. These charges are set to increase with CPI each year.
What remains to be seen is how will this tax will be implemented? It will be orchestrated through council tax bills, but we must wait and see whether this heralds the start of a wholesale reform of council tax valuations, or whether new valuations will be required. If there is to be a round of new valuations, it will be interesting to see who will be responsible for them.”
On the changes to salary sacrificed pension contributions, Neil Maslen, Senior Manager at HW Fisher, said:
“It was announced at the Budget today that from April 2029 there will be a restriction on the amount of National Insurance relief available for pension contributions made under salary sacrifice arrangements.
At the moment, such contributions are not subject to National Insurance.
The Chancellor noted that the cost of this relief is set to grow significantly over the next few years, and mainly benefits higher earners.
The new restriction will cap the relief to contributions of £2,000 a year. Amounts contributed above that will be subject to employer and employee National Insurance.
Many employers pass on all or some of their saving in employer’s National Insurance to the employee’s pension scheme and such arrangements will now need to be reviewed.
While the decision is set to raise £4.7billion for the UK economy, this decision will be most acutely felt in the retirement pots of millions of workers, and some may decide to simply limit their pension contributions under salary sacrifice and take it in the form of salary instead.”
