Client Update - 30th October 2026

The wait is once again over – for 2026, at least. As ever on the afternoon of Budget Day, with the contents of the famous ‘Red Book’ now public, attention turns to the real-world implications of Wednesday’s announcements.

The economic and fiscal context is, undoubtedly, challenging, and Chancellor John Healey’s first Budget comes at a pivotal moment for the UK economy. While inflation has fallen significantly from the multi-decade highs seen earlier this decade, growth has been persistently weak, productivity remains subdued, public debt stands at historically elevated levels, and the cost of servicing that debt has increased markedly as higher interest rates have fed through to government borrowing costs. At the same time, many households continue to feel the effects of several years of pressure on living standards, while businesses face higher employment, energy, and financing costs against a backdrop of continued global economic uncertainty.

The fiscal position facing the Chancellor has been equally challenging. Demand for public services remains intense, demographic pressures continue to drive spending requirements higher, and the Government has repeatedly emphasised its commitment to fiscal discipline and sustainable public finances. That has left ministers seeking to balance competing priorities: supporting growth, encouraging investment, strengthening public services, maintaining market confidence, and avoiding an unsustainable increase in borrowing.

Our new colleagues at Shackleton have helped us put together this review of Wednesdays budget announcements.

Pensions and Inheritance Tax (IHT)

• There was no announcement regarding a delay or cancellation of the planned IHT changes affecting pensions. For now, we must continue to plan on the basis that these changes will take effect from April 2027.

• The planned reduction in National Insurance savings available through pension salary sacrifice arrangements from April 2029 was also not addressed. Until further information is provided, we should assume these changes will proceed as planned.

• The full State Pension is set to increase to £13,036.40, taking it above the standard Personal Allowance. This raises questions about the potential tax implications for pensioners, particularly those with additional income. Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free under the Personal Savings Allowance. Anything above this would be taxable through self-assessment.

• Further clarification is also needed for those who have deferred claiming their State Pension and therefore receive a higher amount. If their total taxable income exceeds the Personal Allowance, Income Tax may be due. We will provide further updates once the detailed guidance becomes available.

Income tax and national insurance

• One of the most significant tax measures remains the continued freeze on income tax thresholds until 2031. While tax rates have not increased, fiscal drag means more people will pay tax as earnings rise, resulting in higher tax liabilities over time.

• By 2030/31, an estimated 5.2 million additional people are expected to pay income tax, with many moving into higher tax bands despite only receiving inflationary pay increases. Around 600,000 more taxpayers are projected to enter the additional-rate tax band, and approximately 25% of taxpayers could be paying either higher-rate or additional-rate tax.

• The freeze on National Insurance thresholds has similar implications. As salaries increase, both employees and employers may face higher National Insurance costs, even without changes to the rates themselves.

• For clients, this highlights the growing importance of proactive tax planning. Pension contributions, salary sacrifice arrangements, and tax-efficient investment strategies can help reduce taxable income, preserve valuable allowances, and mitigate exposure to higher tax rates.

• The Budget also announced higher taxation on rental and cash savings income from 2027. The government is increasing all the rates of income tax applied to savings income by 2%. The savings basic rate will be 24%, the savings higher rate will be 44%, and the savings additional rate will be 49%. These rates will apply across the UK. This will be legislated for in Finance Bill 2026-27 and take effect from 6 April 2027. As a result, ISAs, pensions, and other tax-efficient structures are likely to become increasingly valuable tools for protecting long-term wealth.

• A further announcement was that the government will remove the £2,500 Income Tax Self-Assessment expenses threshold from 6 April 2028. This will allow more taxpayers to claim tax relief on non-reimbursed employment expenses through PAYE and ensure more claims are subject to evidence before relief is issued. The government will keep under review whether there is a case for mandating use of the PAYE route for taxpayers claiming solely employment expenses.

  
  

INDIVIDUAL SAVINGS ACCOUNTS (ISAs)

Cash ISAs

• Protecting the £20,000 Cash ISA allowance is good news for savers, and retaining the full annual allowance is welcome, particularly for those who value financial security, easy access to their savings, and tax-free interest.

• Cash ISAs can be a valuable home for emergency funds, and having an accessible, tax-efficient cash reserve provides a financial safety net for unexpected expenses, loss of income or unforeseen circumstances. Encouraging people to build and maintain an emergency pot is an important part of good financial planning.

• The original proposal (from the 2025 Budget) to reduce the allowance to £12,000 for under-65s risked penalising cash savers and could have disadvantaged people who prefer cash or are uncomfortable taking investment risk, potentially pushing some into taxable accounts rather than encouraging them to invest.

• Ultimately, financial planning is about choice. Cash ISAs provide security, accessibility, and tax efficiency, particularly for emergency funds and short-term goals. They should remain a valuable option alongside longer-term investment strategies.

• The planned 2% increase in tax on savings interest from April 2027 makes retaining the £20,000 Cash ISA allowance even more valuable, as interest earned within a Cash ISA remains tax-free, helping savers protect their returns at a time when interest earned outside an ISA could face a higher tax bill.

  
  

First-Time Buyer ISAs

• This is a welcome step for first-time buyers. The new ISA, due to launch in April 2029, will retain the Lifetime ISA’s 25% government bonus, allowing savers to contribute up to £4,000 a year and receive up to £1,000 in bonus annually.

• Removing the upper age limit should open the door to more people who are saving for their first home, rather than restricting eligibility by age.

• The £450,000 property price cap remains a concern, particularly for London buyers, where getting onto the property ladder can be considerably more expensive. The cap could still limit the usefulness of the new ISA for some purchasers.

  
  

INHERITACE TAX, ESTATE PLANNING AND GIFTING

• Perhaps unsurprisingly, no changes were made to Inheritance Tax rules during the October 2026 budget.

• Significant changes have been announced in recent budgets, namely the £2.5m cap that has applied to both Business Relief & Agricultural Relief qualifying assets from 06 April 2026.

• There were no further announcements with respect to the upcoming changes to the taxation of unused pension funds, where the new rules are due to apply from 06 April 2027.

• As a reminder, most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes after this date. These assets will therefore be taxed at 40% if the total value of the estate exceeds the IHT threshold.

• Benefits paid after age 75 are subject to income tax for beneficiaries, meaning IHT and income tax may be payable after April 2027, so getting personalised advice is key.

• Under the latest proposals, personal representatives (the people managing the estate) will be responsible for reporting and paying any IHT due on pensions.

• Whilst this law is yet to come into effect, for many people it is likely that the planned changes should form part of their considerations when making long-term financial plans. In general, we continue to consider pensions to be an excellent way of meeting income needs in retirement in a tax efficient way. We strongly recommend that any new financial plans made in response to the upcoming changes, as well as any changes to existing plans should be made only based on carefully considered and individually tailored advice. If, for any reason, current planned legislative changes are either not enacted or are changed, those making changes to their financial plans may find that they cannot subsequently “undo” their actions. As with so many decisions, the “right” course of action will almost invariably depend on an individual’s personal situation and attitude to risk.

  
  

CAPITAL GAINS TAX

• There were no changes to personal rates of Capital Gains Tax which will remain at 18% and 24%, nor to the Capital Gains Tax exemption of £3,000 per tax year.

• However, the Chancellor announced a reduction in Business Asset Disposal Relief (BADR) from £1m to £500,000 with effect from 6^th April 2027.

• Designed to reward long-term entrepreneurial investment, Business Asset Disposal Relief (BADR) targets those who are selling all or part of their trading business by offering a reduced Capital Gains Tax rate on sale.

• The reduced rates of CGT applicable for BADR for lifetime capital gains were already increased from 10% in 2024 to 18% from April 6th 2026, so this further reduction to £500,000 will have a significant impact on Business owners who may be planning for retirement.

  
  

RESIDENTIAL PROPERTY AND MORTGAGES

• With regard to the announced increase on income tax from residential property, buy-to-let landlords are further squeezed by an additional 2% tax on their rental income. Income tax was already set to increase to 22%/42%/47% from April 2027 for basic, higher, and additional rate taxpayers. This announcement further increases to 24%/44%/49%, causing more woes for landlords already suffering tighter affordability assessments and higher borrowing costs.

• Strong rental demand from tenants might help offset these pressures and keep balance sheets in the black. Even so, landlords might be tempted to sell up and reinvest proceeds elsewhere to benefit from wider asset diversification and more generous tax allowances. In this instance it’s vital to consider any capital gains tax implications alongside personal circumstances, goals, and objectives, with professional advice being highly valuable ahead of making such big decisions.

• The Chancellor provided a funding pledge of £4.7 billion for the recently announced ‘Your First Home’ scheme which targets support for first-time buyers purchasing a new-build home in England. The intention is to help applicants who already meet affordability requirements for mortgage borrowing but lack sufficient deposit money to proceed. With just 2.5% deposit money saved up, which can be built within the newly announced First-time Buyer ISA, would-be homeowners can take advantage of the government-backed equity loan of 20% alongside conventional mortgage borrowing of 77.5% to complete the purchase.

• First-time buyers might still prefer to rely on the ‘Bank of Mum and Dad’ if they’re lucky enough to have that option, but gifting or lending capital to family members is a significant financial decision which could have positive estate planning benefits but might equally mean loss of access to funds that are needed later in life. Financial planners are well placed to help assess the pros and cons of intergenerational gifting, and advice should be sought before any decisions are made.

  
  

UK ECONOMY, FINANCIAL MARKETS, AND INVESTMENTS

• The build-up to the UK Budget has been somewhat overshadowed by wider global developments, including the ongoing conflicts in Ukraine and the Middle East, rising energy prices and uncertainty surrounding US mid-term elections. Within financial markets, a sharp sell-off in technology and AI-related stocks has also been a key focus for investors.

• Government bond markets have faced a challenging start to 2026, with yields rising to multi-decade highs in several major economies. September was particularly weak, as investors reassessed the outlook for inflation, central bank policy, and the sustainability of government borrowing.

• In recent weeks, however, the spotlight has shifted towards France rather than the UK. Political uncertainty and concerns over fiscal credibility have pushed up the premium investors demand to hold French government debt over German Bunds. The French 10-year yield recently moved above 5%, highlighting the growing pressure on government bond markets where fiscal risks are perceived to be increasing.

• As expected, the UK Budget contained no major fiscal surprises, and the reaction in the gilt market has been muted. The significant rise in yields over 2026, particularly in September, suggests that investors had already priced in much of the risk associated with higher borrowing and a more challenging fiscal outlook. The Chancellor appears to have prioritised fiscal restraint and market stability, avoiding a material increase in spending at a time when volatility across government bond markets remains elevated. Recent developments in France provide a timely reminder of how quickly investor confidence can deteriorate when fiscal credibility comes into question.

• Turning to the UK equity market, bank shares have reacted positively to the Budget, with the increase in the bank surcharge coming in below the level previously feared by investors. Lloyds, NatWest, and Barclays rose by around 3–4% following the Chancellor’s speech, reflecting relief that the tax measures were less punitive than anticipated.

• A further rise in yields, however, would likely present an opportunity to reduce this underweight, as higher yields improve the prospective returns available to investors.

• In the near term, we expect gilts to trade broadly in line with other developed-market government bonds, with investor attention returning to the wider economic outlook, the inflationary implications of higher energy prices and the Bank of England’s policy path.

• Looking beyond the immediate market outlook, there are two important structural differences that make bonds more attractive today than they were a few years ago. First, bond indices generally have shorter duration than during the Covid period, reducing their sensitivity to changes in yields. Second, starting yields are significantly higher, providing a greater income cushion against potential capital losses if yields rise further.

• Together, these factors mean that bonds now offer substantially higher prospective returns than five years ago, with lower duration risk. While further volatility remains possible, the balance between income and interest-rate risk has improved, making bonds an increasingly compelling source of diversification and potential returns over the medium term.

  
  

I hope you have found this rapid reaction communication informative and if you do have any questions, please do consult your adviser before making any changes to your financial arrangements.

I trust that this email finds you well, please do have a good weekend.

Important information:

• This communication is for general information, does not constitute a personal recommendation or regulated financial advice, and is aimed at retail clients only. We strongly recommend that you speak to your financial adviser before making any decisions.

• This commentary on the 2026 Budget was prepared on Wednesday 28 October 2026. All references to tax treatment relate to UK taxation and are based on our current understanding of UK laws and HMRC practices. Any views on future impacts resulting from Budget measures are based on information available at the time of publication and may change. Please remember that Budget measures may be subject to further legislation or amendment before taking effect.

• Tax reliefs may change in the future and may not be maintained. Tax treatment is based on your individual circumstances. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Past performance is not a guide to future performance, and the value of investments and any income from them can fall as well as rise.

• All information supplied is based on our understanding of current legislation and regulation, which may be subject to change. Although best endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or that it will continue to be accurate in the future. We cannot accept responsibility for any loss due to acts or omissions resulting from the content of this communication.

• No statements or representations made in the communication are legally binding upon Chetwood Wealth Management / Ermin Fosse Financial Management / Darnells Wealth Management or Shackleton Advisers Limited or the recipient.

• Shackleton is a trading style of Shackleton Advisers Limited, which is authorised and regulated by the Financial Conduct Authority. FCA Number 163291. Shackleton Advisers Limited is a limited company registered in England and Wales, with number 04129116. The company’s registered address is 40 Gracechurch Street, London EC3V 0BT.