The number of workers paying additional rate tax has jumped to nearly 900,000, up 57 per cent in just 12 months.

Taxpayers paying the 45 per cent additional rate of income tax leapt from 570,000 in 2022/23 to 893,000 in 2023/24 tax year – the latest year for which data is available.

HM Revenue & Customs (HMRC) figures also show that the number of people paying the 40 per cent higher rate grew by close to 13 per cent over the same period, reaching 5.76 million.

Years of wage growth combined with frozen tax thresholds have been steadily dragging more workers into higher tax bands.

The threshold freeze was originally introduced in 2021 under then-chancellor Rishi Sunak and meant that the basic and higher-rate income tax starting thresholds became frozen at £12,570 and £50,270 respectively. Labour has since extended the policy through to 2031, meaning that as wages rise with inflation, ever more people will be dragged into higher tax brackets in a phenomenon known as ‘fiscal drag’.

Forecasts from the Office for Budget Responsibility (OBR) suggest that by 2030, one in four taxpayers will be paying either the higher or additional rates of income tax. This means a greater tax take than ever before for the Government, and more tax paid than ever before by workers.

Another major factor behind the jump in top-rate taxpayers was the reduction of the 45 per cent threshold from £150,000 to £125,140, which took effect on April 6 2023.

Although additional-rate taxpayers represented just 2 per cent of all taxpayers, they contributed almost 38 per cent of total income tax receipts in 2023/24, compared with 32 per cent in 2019/20.

Combined, those paying the higher and additional rates were responsible for more than 70 per cent of the country’s overall income tax revenues.

Pensioners aren’t getting off easy either

The number of pensioners paying income tax rose more than a million in a year, with at least 22 per cent of taxpayers now being over state pension age.

HMRC figures for the 2023/24 tax year showed that there were 8.16 million taxpayers aged over 66, up from 7.14 million in the year before. The jump came as rises in the state pension and a freeze on income tax thresholds pushed more older people into paying 20 per cent basic rate tax on their retirement income.

In 2023/24, an additional 2.17 million people fell into the basic rate income tax band compared with the previous year, while the number paying the 40 per cent higher rate climbed by 654,000 or 12.8 per cent, bringing the total to 5.76 million.

The full new state pension currently stands at £12,548 annually, just £22 short of the basic-rate income tax threshold. As a result, pensioners receiving even a modest extra income are now liable for tax. From next year, recipients of the full state pension could also begin paying income tax on that income alone, because the triple lock ensures payments increase each year by whichever is greatest: wage growth, inflation or 2.5 per cent, and due to the freeze set to remain in place until 2031, even a single year of growth at the lowest possible rate of 2.5% would put the full state pension over the £12,570 personal allowance (also known as the tax-free personal allowance).  

Although chancellor Rachel Reeves said in November that pensioners relying solely on the state pension would not be taxed on it, the details of how that pledge would be implemented remain uncertain, and it has done little to alleviate worries from some of the most vulnerable and state-dependant members of society.

Our chartered financial advisers are expert and unbiased, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. 
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement. 

Understanding when higher rate tax applies is an important part of making informed financial decisions. While tax can often feel complicated, the basic structure is more straightforward than many people expect. Knowing how much you can earn before moving into a higher band, what counts as taxable income and what allowances may be available, can help you plan more effectively and avoid surprises.

In the UK, Income Tax is charged at different rates depending on how much taxable income you receive. For many people, the key question is when earnings move beyond the basic rate and into the higher rate band. That threshold matters because it affects how much of your income you keep, how you approach pension contributions and how you think about wider financial planning.

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Should I pay any Income Tax?

You only pay Income Tax on taxable income above the allowances available to you. For most people, that starts once income rises above the standard Personal Allowance of £12,570. If your earnings stay below that level, you will often have no Income Tax to pay, although there are exceptions depending on the type of income you receive and whether you qualify for any extra allowances.  

It is also worth remembering that Income Tax is not charged on every type of money in the same way. Earnings from work, pension income, rental income and some savings income can all be taxed differently, and some people will have tax deducted through PAYE while others need to report income through Self-Assessment.  

In practice, the question is not simply whether you earn money, but how much taxable income you have after any allowances and reliefs are taken into account.  

When do you pay higher rate tax?

If you live in England, Wales or Northern Ireland, you start paying higher rate tax when your taxable income goes above £50,270. Income between £12,571 and £50,270 is taxed at the basic rate of 20 per cent, and income from £50,271 to £125,140 is taxed at 40 per cent. Above £125,140, the additional rate is 45 per cent. These are the current bands published by GOV.UK for the 2026 to 2027 tax year.  

Scotland uses different Income Tax bands on earned income. There, the higher rate is 42 per cent and begins at £43,663 if you have the standard Personal Allowance, with an advanced rate of 45 per cent above £75,000 and a top rate of 48 per cent above £125,140. That means a Scottish taxpayer can move into higher rate tax sooner than someone elsewhere in the UK.  

One detail that often catches people out is that crossing the higher rate threshold does not mean all of your income is taxed at 40 per cent. Only the part above the threshold is taxed at that rate. This is why a pay rise that takes you over the line is still usually beneficial, even if more of your income is taxed.  

What is a Personal Allowance?

The Personal Allowance is the amount of income you can usually receive before paying Income Tax. For the 2026 to 2027 tax year, the standard figure is £12,570. For most employees and pensioners, this is the foundation of their tax calculation. It reduces the amount of income that is exposed to tax bands and helps determine when basic or higher rate tax starts to apply.  

There is another important point here for higher earners. Once your adjusted net income goes above £100,000, your Personal Allowance is reduced by £1 for every £2 above that level. It falls to zero once income reaches £125,140. This creates a particularly harsh pinch point because you are not only paying higher rate tax, you are also losing part of your tax free allowance as income rises. This is where what’s known as the 60% tax trap kicks in, as it creates an effective 60% tax rate when taking income tax and reduced tax free allowances into consideration. Add in National Insurance and you’re paying a 62% effective rate.  

What is Income Tax used for?

Income Tax is one of the main ways the government raises money to fund public services. HMRC states plainly that it collects the money that pays for the UK’s public services. GOV.UK also provides taxpayers with an annual summary showing how Income Tax and National Insurance contributions feed into government spending.  

In broad terms, that revenue helps support areas such as health, education, welfare, transport, defence and day to day public administration. The Office for National Statistics also notes that taxes make up the majority of government income. So while Income Tax can feel like a deduction that disappears from your payslip, it remains one of the central pillars of how the state funds essential services.  

How much Income Tax will I pay?

That depends on where you live in the UK and how much taxable income you have. In England, Wales and Northern Ireland, someone with taxable income of £60,000 and the standard Personal Allowance would pay no tax on the first £12,570, 20 per cent on the next £37,700 and 40 per cent on the remaining £9,730. That works out as £7,540 at basic rate and £3,892 at higher rate, for a total Income Tax bill of £11,432. The key point is that the higher rate only applies to the slice above £50,270. This calculation follows the current GOV.UK bands.  

If you are in Scotland, the same salary can produce a different result because the bands are different. The tax system is not uniform across the UK, so using the right set of rates matters. This is especially relevant for people who are comparing job offers, approaching retirement, drawing income from multiple sources or trying to decide how much of a bonus to take as salary.  

A further complication is that your tax bill can change if your Personal Allowance is reduced, if you receive taxable benefits, or if part of your income comes from dividends or savings. Income Tax is simple at the headline level, but once income sources multiply, the true figure can move quickly.  

It is also worth understanding the order in which different types of income are taxed, as this can catch people out. Non savings income is taxed first. This includes earnings from employment, self employed profits, pension income and rental income. Savings income is taxed next, which includes things like interest from bank and building society accounts. Dividend income is taxed last. This matters because your non savings income uses up your Personal Allowance and tax bands before savings interest and dividends are taken into account, which can mean those later sources of income are taxed at a higher rate than expected.

For example, if someone in England has a salary of £45,000, savings interest of £3,000 and dividend income of £2,000, their salary is taxed first and uses up all of their Personal Allowance as well as most of the basic rate band. The savings interest then sits on top of that salary, and the dividend income sits on top of both. Even though none of the income sources looks especially large on its own, the order they are taxed in can push part of the interest or dividends into a higher band. That is why it is so important to look at your total income as a whole rather than viewing each source in isolation.

How to minimise the tax you pay

The starting point is to make full use of the allowances and reliefs that are already built into the system. Pension contributions can be particularly valuable because by paying your relief at source (so paying into a pension without the deduction of basic rate tax) this may increase your basic rate tax band which in turn can reduce the amount of income that will be taxed at the higher rate tax band. This can help you reduce the amount of tax you pay at the higher rate or preserve your Personal Allowance if income is above £100,000. 

ISAs can also play an important role because returns within an ISA are sheltered from Income Tax and Capital Gains Tax. Salary sacrifice, where available, may improve tax efficiency too, depending on your circumstances. For couples, holding assets and drawing income in the most tax efficient name can also make a meaningful difference over time. None of this is about avoiding tax. It is about using the rules properly and planning ahead rather than reacting once the tax year has ended.

This is where financial planning becomes useful. The higher rate threshold is a point where decisions about pensions, remuneration, investment wrappers and income timing can start to have a much bigger impact. Knowing where the threshold sits is helpful. Structuring your finances around it is where the real value often lies.

If you want to find out more about minimising the amount of tax you might have to pay, you can request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

Arrange your free initial consultation

The Financial Conduct Authority (FCA) does not regulate cash flow planning or tax.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).

The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. 

The information contained in this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

Pensions remain one of the most tax-efficient ways to save for retirement, and there are several ways to build up your pot through the workplace. One option you may have heard of is salary sacrifice, which allows you to give up part of your salary in return for your employer paying more into your pension.

Under the current rules, this can be a highly efficient way to save, as it may reduce National Insurance costs for both you and your employer. But the rules are changing from April 2029, when the National Insurance benefit will be restricted. That means now could be a good time to understand how salary sacrifice works and consider whether you can make the most of it while the current advantages are still available.

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What is salary sacrifice?

Salary sacrifice is an arrangement where you agree to give up part of your gross salary and, in return, your employer pays that amount into your pension instead. In practical terms, your contractual pay is reduced and your pension contribution is made by the employer rather than being taken from your pay afterwards. That matters because salary sacrifice changes how Income Tax and National Insurance are calculated on your earnings.  

For many workplace pension members, it is one of the simplest ways to make pension saving more efficient. Instead of paying into a pension from taxed pay, the contribution is made before your salary reaches your bank account. This can improve take home pay, increase the amount going into your pension, or do a bit of both, depending on how your employer has set the scheme up.  

How does salary sacrifice help with pensions?

The main attraction of salary sacrifice is that it can make pension saving more efficient without requiring you to invest more of your disposable income. Because your salary is reduced, you do not pay Income Tax or National insurance on the amount being sacrificed, therefore, overall you pay less National Insurance and Income Tax because you have less salary. Your employer also pays less employer National Insurance on that part of pay.  

Some employers keep their own National Insurance saving, while others choose to add some or all of it to your pension. When that happens, salary sacrifice can become especially powerful because the pension receives more money than it would under a standard employee contribution arrangement.  

There can also be wider planning benefits. Salary sacrifice lowers taxable pay and adjusted net income, which may help some people tipping into higher tax thresholds linked to the personal allowance taper or support eligibility for certain forms of childcare support. That will remain the case even after the future salary sacrifice reform takes effect.  

What are the tax savings with salary sacrifice?

Employee savings

For employees, the saving comes through lower National Insurance and lower Income Tax as no National Insurance or Income Tax is payable on the amount sacrificed. Under the current rules, salary sacrifice pension contributions reduce the pay on which those deductions are worked out. Both Income Tax and National Insurance are calculated after the sacrifice has been made.  

That means a pension saver can often build a larger retirement pot more efficiently than through an ordinary deduction from net pay. For basic rate taxpayers the result is often straightforward and visible on the payslip. For higher earners, the benefit can be even more noticeable, especially if salary sacrifice is used for regular contributions or bonus sacrifice. The exact gain depends on income level, National Insurance band and whether the employer shares any of its own saving.

Employer savings

Employers also benefit because pension contributions are not normally subject to employer National Insurance, while salary is. The standard employer National Insurance rate is 15 per cent on earnings above the relevant threshold for 2026 to 2027, which is why salary sacrifice can reduce payroll costs.  

That saving creates choices. Some firms use it to offset rising employment costs. Others pass some or all of it into employees’ pensions, which can make salary sacrifice particularly attractive as part of a workplace benefits package. For businesses trying to improve pension engagement without sharply increasing overall reward spend, salary sacrifice has often looked like a practical middle ground.

Are there any disadvantages to salary sacrifice?

Salary sacrifice is not right for everyone. Because it reduces contractual salary, it can affect anything linked to your official pay figure. In some cases that may include mortgage affordability assessments, redundancy calculations, life cover linked to salary, or statutory payments such as maternity pay, paternity pay or sick pay. HMRC says salary sacrifice can reduce statutory pay and, in some circumstances, can remove entitlement if earnings fall below the lower earnings limit.  

There is also a practical limit for lower earners. A salary sacrifice arrangement cannot reduce cash pay below the National Minimum Wage or National Living Wage. That means some employees, especially those on lower or variable earnings, may not be able to use it fully or at all.  

This is why salary sacrifice should be seen as a planning tool rather than a default choice. The savings can be valuable, but the wider impact on pay related benefits and borrowing needs to be checked first.

Who benefits from salary sacrifice?

In broad terms, salary sacrifice tends to work best for employees with enough headroom above minimum wage, stable earnings and a workplace pension scheme that is already well organised. It can be particularly useful for higher earners, people making larger pension contributions and employees whose employer shares its own National Insurance saving.  

Employers can benefit too, especially if they want a tax efficient way to support pension saving while managing payroll costs. HMRC commissioned research published in 2025 showing that salary sacrifice was already a significant feature of employer pension thinking, and that potential National Insurance reform could influence whether employers continue to offer it in the same way. 

That said, the biggest winners have often been those making sizeable pension contributions through salary sacrifice year after year. That point matters because it helps explain why the government has now decided to intervene.

What is changing?

The government announced at Autumn Budget 2025 that the National Insurance advantage of pension salary sacrifice will be restricted from 6 April 2029. From that date, only the first £2,000 a year of employee pension contributions made through salary sacrifice will remain exempt from National Insurance. Any amount above that will be subject to both employee and employer National Insurance. Pension contributions made this way will still remain exempt from Income Tax, subject to the usual pension limits.  

This is a significant shift. At the moment, there is no equivalent National Insurance cap on pension contributions made through salary sacrifice. From April 2029, the structure remains in place, but much of the National Insurance advantage disappears once contributions go over the new annual limit.  

How much could pension savers using salary sacrifice lose?

The answer depends on how much is being sacrificed above the new £2,000 limit and which National Insurance rate applies to the employee.

For modest contributors, the impact may be limited. For larger pension savers, especially those using salary sacrifice heavily, the difference could be meaningful. The Office for Budget Responsibility estimate cited by the House of Commons suggests the reform will raise £4.7 billion in 2029 to 2030 and £2.6 billion in 2030 to 2031, which underlines how much value the current National Insurance relief provides.  

The people most likely to feel the change are those sacrificing well above £2,000 a year, including higher earners and employees using salary sacrifice for bonus planning. They may still want to use salary sacrifice, because the Income Tax treatment remains valuable, but the numbers will look less compelling than they do today.  

Why has the government announced this change?

The government’s published explanation is that these reforms are aimed at tax reliefs whose cost has been rising and which disproportionately benefit wealthier individuals. In other words, ministers see the current rules as generous, expensive and unevenly distributed.  

There is also a clear fiscal motive. The reform raises revenue without removing pension tax relief entirely. Salary sacrifice for pensions will continue, and contributions will still be exempt from Income Tax, but the National Insurance advantage will be narrower and more controlled. That allows the government to keep encouraging pension saving while collecting more from larger contributions.  

Talk through your pension options

Salary sacrifice can still be a useful way to pay into a pension, but it is worth reviewing how well it fits your wider plans. It may still work well now, especially if your employer adds some of its own National Insurance saving into your pension, but the position could look less attractive once the rules change in April 2029.

One option is to keep using salary sacrifice if it remains efficient for your level of earnings and contribution. Another is to review how much you are sacrificing, especially if you pay in larger amounts and may be affected by the new £2,000 annual National Insurance exemption limit from 6 April 2029. It can also be sensible to check how a lower contractual salary could affect things like borrowing, statutory pay and other benefits.

The key is to prepare early. Salary sacrifice is still valuable, but those making larger pension contributions may want to review their approach before the new rules begin.

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This article is for information only and does not constitute individual advice. The information provided in this article is based on the current allowances and legislation and is subject to change.

The Financial Conduct Authority (FCA) does not regulate trust or tax advice.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

In the UK, the interest you earn on savings can count as taxable income once it reaches a certain threshold.  

The amount you can earn before you reach this threshold is known as the ‘Personal Savings Allowance’. This is the amount of savings interest you can earn before tax is applied, depending on your Income Tax band.  

It is different from your HMRC ‘Personal Allowance’, which is the amount of income you can earn each tax year before paying Income Tax. The two are often confused, but they do different jobs. Your Personal Allowance covers income more broadly, while your Personal Savings Allowance is specifically about interest earned on cash savings. 

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The basics about savings and tax

Contrary to what many people assume, savings are not always tax free. In the UK, the interest you earn on your savings can be taxable, depending on how much you receive and your Income Tax band. Many savers will not pay any tax, but it is still important to understand the limits.

The good news is that the rules are a bit more generous than many people realise. Before savings interest is taxed, several allowances may come into play. Your Personal Allowance can help, there is a starting rate for savings in some cases, and most savers also have a Personal Savings Allowance. Together, these can mean you earn some interest without paying any tax. And everyone can also take advantage of the Individual Savings Account (ISA) where any returns are free of any tax.

What types of savings interest are taxed?

The main type of savings income people think about is interest from bank and building society accounts, and that certainly can be taxed. But savings income is wider than that. It can also include interest from some credit union accounts and certain other savings products that pay interest outside a tax sheltered wrapper. In practice, if a product pays you interest and it is not a tax efficient account such as an ISA, there is a good chance it needs to be considered.  

By contrast, interest earned inside an ISA does not count as taxable savings income. That is one of the reasons ISAs remain so useful, especially for higher earners or for people with larger cash balances who may go over their allowance elsewhere.

The tax treatment of children’s savings can also be different in some cases, especially where money has been given by a parent, so that is another area where it pays to be careful.  

What is a Personal Savings Allowance?

The Personal Savings Allowance is the amount of savings interest you can receive each tax year before tax becomes due. It is linked to your Income Tax band rather than being the same for everyone. Basic rate taxpayers can earn up to £1,000 in savings interest tax free. Higher rate taxpayers have an allowance of £500. Additional rate taxpayers do not get any Personal Savings Allowance.  

This allowance has become especially important in recent years because higher savings rates have pushed more people above it. Someone with a modest savings balance in cash may never notice the rules. Someone with a larger emergency fund or house deposit can cross the line much more quickly once interest rates start to rise. That does not mean saving is a mistake, but it does mean the tax position is worth checking.  

How your personal savings allowance works

Your allowance is based on your highest rate of Income Tax. To work that out, HMRC looks at your other income and your savings interest together. That means your tax band is not judged in isolation from your savings. If your earnings already put you in the higher rate band, your Personal Savings Allowance is £500. If your income places you in the additional rate band, it will be nil.  

There is also a starting rate for savings, which can help people on lower incomes. If your non savings income is low enough, you may be able to earn up to £5,000 in savings interest at a 0% starting rate. This is separate from the Personal Savings Allowance and can sit alongside it. In the right circumstances, that means someone with a lower income may be able to receive more interest before any tax is due.  

What your Personal Savings Allowance includes

Your Personal Savings Allowance applies to savings income such as bank and building society interest. In simple terms, it covers the interest you receive from taxable savings accounts. HMRC says you should add the interest you have received to your other income when working out your tax position, which shows that the allowance is about savings income.

What does not need to be included is interest from tax free wrappers such as ISAs, because that interest is already outside of the tax net. It also does not mean all investment returns are treated the same way. Dividends, for example, have their own separate rules, and gains on investments follow different tax rules again. That is why it is important not to lump all savings and investments together as though they are taxed in the same way.  

Exceeding your Personal Savings Allowance

If your savings interest goes above your Personal Savings Allowance, the excess is taxed at your usual rate for savings income. So a basic rate taxpayer would generally pay 20% on the amount above the allowance. A higher rate taxpayer would generally pay 40% on the excess. Additional rate taxpayers will also face a tax charge on all of their taxable savings interest at 45% because they do not receive the allowance.  

It should also be noted that the tax rates on cash savings is increasing by 2% from 6th April 2027. So, a basic rate taxpayer will pay 22%, a higher rate taxpayer will pay 42% and an additional rate taxpayer will pay 47% on any taxable interest.

The Personal Savings Allowance can be used up more easily than people expect. As mentioned earlier, a large cash balance held for security can produce a sizeable amount of interest when rates are decent.  

As an example. If your savings account is paying you 4.0%, you only need a balance of £25,000 to use up the whole of your basic rate allowance of £1,000 in a year. Everything above that £1,000 will be taxed.

In some cases, savers who have never had to think about tax on their interest before may suddenly need to. That is often the point where a review of account structure, ISA use, and wider financial planning becomes worthwhile.  

Paying tax on savings interest

Banks and building societies pay interest gross, which means without deducting tax first. If tax is due, HMRC will usually collect it later. For many employees and pensioners, that is done by changing the tax code so the right amount is collected through PAYE. If you complete a Self Assessment tax return, savings interest is usually dealt with there instead.  

That system can feel easy when it works properly, but it still leaves room for mistakes. If HMRC does not have the right information, or if your circumstances change during the year, the amount collected may not be exactly right. That is one reason it is sensible to keep an eye on how much interest your accounts are generating rather than assuming everything has been sorted automatically.  

It is worth noting that most banks and building societies tell HMRC how much interest they have paid to their customers, so trying to ‘hide’ from HMRC is not advisable.

How to pay tax on savings and investments

As mentioned above, if you already file a Self Assessment return, you normally declare your taxable savings interest there. If you do not complete Self Assessment, HMRC may adjust your tax code to collect what is owed. Where tax has been deducted and should not have been, you may be able to reclaim it, including through form R40 in the appropriate cases.  

The key point is that savings and investments should not be looked at in isolation. Cash interest, ISA allowances, dividend income, and other taxable returns all interact with your wider financial picture. A decision that looks sensible on one account can become less efficient when you step back and look at your full position. Good planning is often less about chasing the highest headline rate and more about keeping more of what you earn after tax. 

Speak to an expert to protect your savings

Tax on savings is not always complicated, but it is easy to misunderstand. A lot depends on your income, your tax band, and where your money is held. What seems like a small detail can make a real difference once balances grow or interest rates improve. And don’t forget, using any unused allowance your spouse has can help minimise your tax bill when working as a couple.  

Speaking to an expert can help you understand whether you are likely to pay tax, whether your cash is in the right place, and whether you could make better use of wrappers such as ISAs. The aim is not to make saving feel difficult. It is to help you keep your plans efficient, avoid unpleasant surprises, and make sure more of your money keeps working for you. 

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The Financial Conduct Authority (FCA) does not regulate cash flow planning or tax.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The rate of inflation in the UK has risen to 3.3% in March 2026, up from 3% in February, according to figures released from the Office for National Statistics (ONS).

The ONS collected their data for this month’s inflation figure in the middle of March, meaning that these figures reflect the first few weeks of the Middle East conflict. They offer an early snapshot of the trend we might expect in the coming months as the economic impact of the war begins to be reflected in real terms.  

Prior to the conflict, expectations were that the Bank of England would begin cutting UK base rates over the course of the year. However, concerns around rising inflation have led to suggestions that rates could remain unchanged, or potentially be pushed higher. 

Source: ONS, Bank of England - 2026.

The Monetary Policy Committee (MPC) are due to meet next week to decide whether to increase the current rate of inflation, which currently sits at 3.75%.  

What is driving the inflation increase?

At least in part as a knock-on impact from the conflict in the Middle East, many prices have seen noticeable increases.  

Fuel costs jumped sharply, climbing 8.7% compared to the previous month. This marks the steepest monthly rise since June 2022, which was the period following Russia’s invasion of Ukraine.

Looking at the annual picture, prices were up 4.9% in the year to March, representing the fastest rate of increase since January 2023.

For food the rates were lower, coming in at 3.7%. It can often take about a year for food supply cost changes to truly be reflected in food prices in the UK, so expect your shopping bill to continue to creep up in the coming months.

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affects the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%.

Anything significantly above or below this target is thought to cause issues for the economy.  

The cost of living surged in recent years, with inflation peaking at 11% in 2022 - way above the Bank of England's 2% target, partly due to the increase in energy prices following Russia's invasion of Ukraine.

While the rate has dropped, falling inflation does not mean the goods and services are coming down in price overall, it is just that they are rising at a slower pace.

Our chartered financial advisers are expert and unbiased, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

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This article is for information only and does not constitute individual advice. 

Inheritance and divorce can be a tricky issue. For those hoping to keep as much wealth as possible within the immediate family, across many generations and to provide for the future, the question of whether a divorced spouse can inherit this family wealth is a significant one.

If you’re a little unsure about the future of yours or your loved one’s marriage, it’s wise to know where you stand.

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Can my ex-husband claim my Inheritance after divorce?

Many families worry about whether a former spouse could benefit from wealth that was intended to stay within the family. In some circumstances, an inheritance may become relevant during divorce proceedings, particularly when the court is deciding how assets should be divided fairly between both parties.

If an inheritance has already been received during the marriage, the court may consider it when determining a financial settlement. However, this does not necessarily mean it will be divided between both parties, as several factors are taken into account, including how the inheritance was used and whether the couple’s needs can be met using other assets.

Where an inheritance has not yet been received but is expected in the near future, the court may also consider this when assessing the financial circumstances of each party. 

Are Inheritances always excluded from financial settlements?

Inheritance is often treated differently from assets acquired during a marriage. In many cases, inherited wealth may be viewed as separate property rather than a shared marital asset. However, this is not guaranteed, and the circumstances of each case will influence how the court approaches the issue.

Critically, the court’s primary focus is always on the financial "needs" of both parties. If the matrimonial assets available are not sufficient to meet the reasonable needs of both parties, such as housing and basic security, the court may override the non-matrimonial status of an inheritance and include it as part of the financial settlement. For this reason, inheritance cannot always be assumed to be fully protected during divorce proceedings. 

Understanding Matrimonial Vs Non-Matrimonial Assets

In the event of divorce, assets can be considered either matrimonial or non-matrimonial. The former includes money and property acquired during the marriage by either party, while the latter includes money and property that have come from outside the marriage – including inheritance.

• What are Matrimonial Assets? Matrimonial assets generally include property, savings, pensions and other wealth accumulated during the course of the marriage. These assets are typically considered joint property, regardless of whose name they are held in, and are therefore subject to division as part of a financial settlement.#
• What are Non-Matrimonial Assets? Non-matrimonial assets are usually assets that were owned before the marriage or that were received individually by one party during the marriage from an external source. This can include inheritance, gifts from family members, or assets that were clearly kept separate from the marital finances.

Non-matrimonial assets aren’t automatically considered as joint assets to be divided, and you may be able to exclude them completely from the divorce settlement. However, as noted above, this protection is not absolute; if the matrimonial assets aren’t enough to meet the reasonable needs of both parties, non-matrimonial assets, like inheritance or financial assistance, will likely be divided to ensure a fair outcome.

It’s also important to note that assets can change from non-matrimonial to matrimonial over time. If an inheritance, for example, was received during the marriage, the court may look at how it was used before deciding whether it might be divided or not. For example, if the money was in a joint account and used by the couple together, it may then be considered joint property to be divided. 

How can you protect your inheritance from an ex-spouse’s claims?

Protecting inherited wealth often requires forward planning. Taking steps early can help reduce the likelihood that inheritance becomes part of a future divorce settlement.

Keeping inherited funds separate from joint finances can help demonstrate that the asset was intended for one individual rather than the couple. Similarly, maintaining clear records of how inherited funds are held and used can provide valuable clarity if disputes arise.

In addition, formal agreements such as prenuptial or postnuptial agreements can set out how inheritance and other assets should be treated if the relationship breaks down.

Benefits of a pre-nuptial agreement: 

Prenuptial agreements, which are made before marriage to set out how assets would be divided in the event of a divorce, are often used to help in preserving family wealth and other contributions that parents may have made or intend to make to their children.

With a prenuptial agreement, or a ‘pre-nup’, any gifts, assets or inheritance given from a parent to their adult child will be protected after a divorce – for some parents, it’s a condition of the gift.

While a pre-nup is not technically legally binding, it’s enforced in practice as long as both parties have freely entered into the arrangement with full appreciation of what it entails and as long as the outcome would satisfy the "needs" of both parties and not leave one in real financial difficulty. The clarity and transparency that a prenuptial agreement provides ensures less chance of confusion in the event of the marriage breaking down and it can offer future security for both parties too. Pre-nups can also provide more security in international marriages – for example, determining where the divorce proceedings might take place – and when a couple has been living together before getting married.

Benefits of a post-nuptial agreement

Similar to a prenuptial agreement, there are postnuptial agreements, or a ‘post-nup’. However, unlike a pre-nup, a post-nup can be entered into any time once the parties are married.

Couples may well get post-nups if they hadn’t considered making an agreement before the marriage, if they ran out of time before getting married, or if there’s been a notable change in the financial situation of one of the parties since the marriage.

The benefits of post-nups are much the same as the benefits of pre-nups, helping to protect the parties in a marriage and make things clearer and more transparent. It can also be a good option for those couples who have been separated but then decided to work on their marriage rather than go through with a divorce. However, some people will prefer to sign off on an agreement before the marriage begins. 

If an agreement with regard to division of assets is reached upon divorce, it is essential that the terms are recorded in a Consent Order to make clear that the terms are in full and final satisfaction of all claims, and that all further financial claims a party may be able to make against the other are dismissed.  This is known as a “clean break”.

Even if terms of financial settlement are agreed and implemented, unless the terms are recorded in a Consent Order and a “clean break” obtained, it remains open for either party, even years after the divorce has been finalised, to pursue further financial provision.  Whether a party would be successful depends on the circumstances at the time the claim is made but the risk remains that further financial provision can be pursued.  This could include claims in respect of inheritance, or any other asset or income, that may be received long after the divorce.    

Other options include entering into loan agreements if, for example, a parent/family of one party makes a financial contribution and expects such contribution to be repaid i.e. it is not a gift.  In those circumstances it would be advisable to enter into a loan agreement to outline the terms of the loan and repayment.  

Finally, a further option would be to establish Trusts and place the inheritance into a Trust Fund. 

Can an ex-spouse claim on my estate after I die?

It is a common misconception that divorce ends all financial ties. In reality, a former spouse can still make a claim against your estate even long after the divorce has been finalised. Under the Inheritance (Provision for Family and Dependants) Act 1975, an ex-spouse who has not remarried may be entitled to claim against your estate if they believe they have not been left "reasonable financial provision." This risk remains unless you have obtained a properly drafted financial order (such as a Clean Break Order) that explicitly prohibits claims against each other's estates after death. For this reason, it is important to ensure that financial settlements are properly finalised and that your will is reviewed following divorce to reflect your updated wishes. 

How we can help

The financial aspect of divorce is something that can be hard to deal with, but there are ways to help protect your finances and preserve family wealth, even if you’re dealing with many generations of wealth that you need to look after for your future generations.

Here at The Private Office, we can offer advice either before marriage or when going through a divorce. The earlier you engage with us the more we can help to protect your wealth. Far better outcomes are achieved when appointing a financial adviser much sooner in the divorce process. Advice can help to understand tax implications, planning opportunities and establishing how much capital and income you need to live the lifestyle you wish to live.

If you’re looking to protect either your wealth in divorce or protect your family's inheritance why not get in touch online for a free initial consultation?

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This article is for information only and does not constitute individual advice.  The Private Office are not legal professionals, and this article has been written upon our understanding of the subject matter, as such professional legal advice should be sought prior to proceeding with any advice in this area.

The Financial Conduct Authority (FCA) does not regulate estate planning, legal, tax or trust advice.

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The start of the new tax year is often a good time to take stock of your finances, to review what you already have and consider what you need to do next. And in today’s environment, where every penny counts, making full use of the tax allowances that are still available has never been more important.

The ever-popular Individual Savings Account, or ISA is a good place to start. Like a lot of our tax allowances, the ISA allowance has been frozen for many years, so for the 2026/27 tax year, the overall ISA allowance remains at £20,000, offering one of the simplest and most effective ways to protect your savings and investments from tax on interest, dividends, and capital gains.

However, there are changes coming for those who favour the cash element of an Individual Savings Account (ISA).

Cash ISA allowance to be cut

Cash ISAs regained their popularity over the last few years, as interest rates increased, which led to savers paying more tax than they had for over a decade when interest rates were at rock bottom. There is now some £458 billion stashed away in cash ISAs, almost a quarter of the total amount held in cash savings. But for savers under the age of 65, the current tax year is the last chance to make use of the full ISA allowance for cash only deposits.

From 6 April 2027, the rules are set to change. Whilst the overall ISA allowance will remain at £20,000, only £12,000 of that can be deposited into a cash ISA for those aged under 65. To use the full allowance, the remaining £8,000 will need to be invested in a stocks and shares ISA.

To add insult to injury, at the same time that the cash ISA allowance is to be cut, the tax on savings interest will be increasing by 2%. So, a basic rate taxpayer will pay 22% on any taxable interest, it’s 42% for higher rate taxpayers and 47% for additional rate taxpayers, making the cash ISA even more valuable.

The good news is that those aged 65 and over are not affected by this change. They will still be able to place the full £20,000 into cash if they wish, a welcome exemption for older savers. But it highlights a broader policy direction, encouraging younger savers towards investment. 

A nudge towards investing

Whilst the comfort of a cash ISA is understandable, particularly in volatile times, it’s important to be aware that inflation can quietly erode the value of savings, and even with improved interest rates, cash may struggle to deliver meaningful real returns over time if inflation is higher than the interest you are earning. So, it might be worth asking yourself whether a purely cash-based approach is the right strategy for the longer term.

This is where stocks and shares ISAs come into play. They are not without risk though as values can go down as well as up. But they offer the potential for growth that cash generally cannot match over the long term, as long as you are prepared to accept the inevitable bumps in the road. You can of course, choose investments that better reflect your own personal attitude to risk, which will help minimise any potential downs and ups.

These changes could therefore be viewed as a prompt to diversify if you don’t need access to your money for the longer term, so more than five years. Using some of your ISA allowance for investment could make a meaningful difference to your future financial health. 

Use it or lose it

Given the upcoming changes, this tax year (2026/27) is an opportunity not to be wasted. If you are under 65 and prefer cash, it may make sense to maximise your cash ISA contributions while you still can.

And due to the ongoing conflict in the Middle East, with the expectation that inflation and therefore the Bank of England base rate could rise, savings rates have been increasing recently. Good news for savers, especially those who don’t also have debts.  

So, if you have funds sitting in taxable accounts, now is the time to consider sheltering them, as once the tax year ends, you can’t carry it forward.

Don’t overlook the Lifetime ISA

Alongside the standard ISA options, there is also the valuable Lifetime ISA (LISA), which is available to those aged between 18 and 39. The LISA allows you to contribute up to £4,000 per tax year, which counts towards your overall £20,000 ISA allowance and the real attraction is the generous 25% government bonus. In simple terms, a £4,000 contribution is topped up to £5,000, an immediate and very attractive return, even before any interest of investment growth is added.

Traditionally, the LISA has served a dual purpose: helping people save for their first home or for retirement. However, it is currently under review, and there is growing speculation that the retirement element could be removed going forward, making it simply a product for first-time buyers.

In the meantime, for those eligible, it remains a compelling option, particularly if you are saving for your first home.  

ISAs for the next generation

It’s also worth remembering that children have their own ISA allowance through the Junior ISA (JISA).

With a current annual allowance of £9,000 per year, the Junior ISA allows parents, grandparents, and others to build a tax-free savings pot on behalf of a child. It can be held in cash or invested, depending on your preference and time horizon.

There is, however, an important point to bear in mind: there is no access to the money until the child turns 18, at which point they gain full control of the account, which could have grown to a really significant amount. The funds become theirs to use as they wish, whether that’s for university, a car, a house deposit, or, indeed, something less sensible.

Alternatively, the funds can be rolled over into an adult ISA, retaining the tax-free status and allowing the savings habit to continue into adulthood.

For those who save for their children, it makes sense to have open conversations with them as they grow older, so that hopefully they will do the right thing with this valuable gift. Financial education is just as important as the savings themselves.

Time to take action

The beginning of the tax year is a great time to make use of your ISA allowance, for a couple of reasons.  

First, during the ‘ISA season’ of which April is the pinnacle, cash savings providers tend to compete with each other, which pushes rates higher, providing plenty of choice.

Secondly, why leave your cash in a taxable account any longer than you need to. Although often the headline rates on taxable fixed rate bonds may look higher than the same term cash ISAs, once you deduct income tax, you can earn far more in the tax-free ISA, as the table below illustrates:

Now is also a good time to review your old ISAs, to see if you could be earning more by switching. The key rule is vital though - never withdraw the funds yourself. Instead, always use the official ISA transfer process provided by your new provider, who will liaise directly with your existing bank or building society. If you take the money out and attempt to redeposit it, it could lose its ISA “wrapper” which crucially means you would forfeit the tax-free status tied to those historic allowances. Given that ISA allowances cannot be reinstated once lost, this is an irreversible and often costly mistake.  

Reviewing your old ISAs whilst making the most of your new ISA allowance means that you can make your cash work as hard as possible, particularly important if we are to see inflation spiking upwards once again.

If you want to make your cash work harder, it is important to compare rates regularly and move money when better deals arise. In a market that is shifting and where relatively small rate differences can add up to hundreds of pounds over a year, staying informed is the best way to keep your savings working as hard as possible. Check our best buy tables for the most up to date savings rates. 

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Rates correct as at 07/04/2026. 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.  

The Financial Conduct Authority (FCA) does not regulate cash flow planning. 

Inflation held steady at 3% in the 12 months to February, matching expectations and unchanged from January, though it continues to sit above the Bank of England’s 2% target.

It should be noted this figure was recorded prior to the outbreak of conflict in the Middle East, which has since driven up the cost of energy and fuel, meaning inflation is expected to rise in the coming months.  

Despite the sticky 3% rate of inflation, pensioners are set to receive higher state pension payments from Monday 6 April, during the first full week of the new tax year.

The main state pension rate is set to rise by 4.8% under the ‘triple lock’ system.

This established government policy ensures the state pension increases each year by the highest of inflation, average earnings growth, or 2.5%.

For this year’s adjustment, earnings growth was the deciding factor during the key reference period used to set the increase.

This means that pensioners are actually beating the rate of inflation for the start of the new tax year. And because the average earnings growth has now fallen below 4% according to ONS figures from November 2025 to January 2026, pensioners are also set to see a bigger increase than the workforce, since wages growth for the triple lock is calculated between May and July the previous year.  

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising interest rates directly affects the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.  

The cost of living surged in recent years, with inflation peaking at 11% in 2022 - way above the Bank of England's 2% target, partly due to the increase in energy prices following Russia's invasion of Ukraine.

While the rate has dropped significantly since then, falling inflation does not mean the goods and services are coming down in price overall, it is just that they are rising at a slower pace.

Our chartered advisers are unbiased, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

At the time of writing the Middle East conflict is in full flow. The Straits of Hormuz are effectively closed, and markets are swinging on a daily basis depending upon whether Donald Trump has got out of the left hand side or right hand side of his bed. In short, no one has got the faintest idea what’s happening and by the time this article goes to print, for all I know, the war will be over, and markets would have jumped 10% or, things will have escalated and markets will have fallen 10%.

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“Don’t panic Mr Mainwaring” blurted Corporal Jones, in virtually every episode of the classic BBC comedy, Dad’s Army. Of course, no one was panicking, except for Corporal Jones himself and in this state of blind panic, he was the least likely member of the platoon to be able to resolve the predicament they happened to be in. Panicking, generally, does not lead to sound decision making and certainly not sound financial decisions.

There are plenty of reasons to ‘panic’ in today’s world (financially and otherwise) but as Corporal Jones has shown us, panicking gets you nowhere. Life goes on, and the markets go on too and the worst thing investors can do is convince themselves that “this time it’s different”, that the end is nigh and that we all need to grow carrots and store drinking water in industrial quantities.

In their 2009 book “This Time is Different”, the economists Carmen Reinhart and Kenneth Rogoff argue that investors always fall for the trap of believing that the game is up and that capitalism is over and investing is no longer viable. There are always people who come out of the woodwork at these moments in time to endorse and bolster the naysayers, not because their views are valid but because the media is prepared to give them airtime. Funnily enough, we do not hear about them much when markets are doing well which, believe it or not, is most of the time.

The peace of mind a financial plan provides

I’m not pretending that the Iran war isn’t a threat to the world economies, far from it, but I wouldn’t like to bet on markets being lower in a year’s time to where they are now. They might be, of course, but if you want to safeguard yourself against inflation, history has taught us that market exposure is the best way to do it. Cash and bonds generally lose in real terms over the long term.  

Markets tend to recover from shocks, whatever they are, and economists call this antifragility, which is the general principle that markets are able to adapt to new conditions. As one source of enterprise closes down, another one opens up and markets always sniff them out, if not immediately, then in time.

It is all well and good to say "don’t panic," but that is much easier to achieve if you actually have a plan in place. The major benefit of having a plan that you regularly revisit is the emotional peace of mind it provides. It moves you away from making knee-jerk reactions based on the morning's headlines and back towards a structured approach. If your personal circumstances change, or the government decides to shift the goalposts on taxes, a quick review of the plan will tell you exactly what needs to be adjusted. By keeping a close eye on your financial roadmap, you can ignore the noise of the markets, knowing that while the path might get a bit bumpy, you are still heading in the right direction.

What we already know

In addition to the “unknowns” (such as the Iran war), we also have the “known” events of future tax changes which are much favoured by the current Labour Government. On going stealth taxes, announced in 2021 as a short-term measure post Covid but now expected to continue until at least 2031. Dividend Tax increase and VCT relief reduction (April 2026); IHT on pensions (April 2027); Mansion Tax (2028) and Salary Sacrifice capping (2029).  

In previous articles I have highlighted the dangers of not investing. Just to remind you, in the 20 years from 1st January 2004, $10,000 invested in the S&P 500 would have grown to $66,637 (an annualised growth rate of 9.7%). Had you missed the best 10 days during that 10 years the final sum would have been $29,154 (5.5% annualised growth rate). Take away the best 20 days and it’s $17,494 (2.8%). The message is, of course, stay invested and don’t try to call the markets.

As always, the key is to ensure that you have sufficient liquidity to ride out market volatility. For clients who are nearing retirement, they enter into the ‘decumulation’  - or ‘drawing down’ - phase of their investing life. That is, the scary moment when assets accumulated over decades must now step up to the plate and start delivering actual money to ensure a comfortable retirement. If you don’t plan this properly, you become exposed to what is known as “sequence risk”. This represents a significant threat to portfolios if investments are encashed to meet ongoing expenditure during a market downturn. Risk management planning is vital in retirement to ensure you avoid this pitfall. Investment portfolios need to remain invested, to protect them from long term real value erosion, but for decumulators, the higher risk elements must still be viewed as long term and kept invested for many years, if need be, to await a recovery if the downturn is severe. That’s why the cash buffer is important!

In January 2026, markets were looking bullish, economies were generally on the up and most market commentators were positive about the prospects of equity markets continuing to do well. So, what do we do? Keep calm and carry on investing, or, to quote another Dad’s Army character, hold our heads in our hands and say “we’re doomed!”.

But whatever you decide, the best approach is to have your own personal plan in place, review it with your professional advisers and above all, don’t panic!

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, will writing, tax or trust advice.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

Past performance is not a reliable indicator of future performance.

Kensington & Chelsea tops the list as the UK’s most expensive inheritance tax hotspot, with an estimated £343,924 due on the average property in this area, rising to an estimated £405,211 including pensions. With property prices continuing to drive estate values above tax-free thresholds, homeowners in the London boroughs dominate the rankings. Still, high-value areas outside the capital are also pushing many families into six-figure tax bills.

New analysis reveals the regional impact of bringing pensions into inheritance tax calculations

UK inheritance tax receipts reached £8.25 billion in 2024/25, with projections exceeding £9 billion by 2026/27. This surge is driven by frozen tax-free thresholds (£325,000 until 2030/31) and rising asset and property values. Geography plays a key role, as families in southern England are far more likely to face IHT than those in northern or coastal regions, even with similar lifestyles.

By analysing land registry data for average property values* across 372 local authorities in the UK and combining this with predicted pension pot values based on median salaries in these areas, The Private Office has identified the areas of the UK where more people will face the highest estimated inheritance tax liabilities.

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The locations predicted to be hit by IHT when pensions are no longer exempt 

From 6 April 2027, most unused pension funds and death benefits will be included in an individual’s estate for inheritance tax purposes, meaning they are no longer exempt. If the total estate, including pensions, exceeds the £325,000 threshold (or up to £500,000 including a main residence if left to direct descendants), amounts above this limit will be liable for 40% IHT.

Historically, pensions sat outside IHT calculations, so this proposed change could significantly reshape estate planning and impact people very differently depending on their location. New analysis combining local property values with typical pension pots based on median earnings highlights which parts of the UK are most exposed once pensions are included.

Research shows that 152 local authorities, previously below IHT thresholds, could fall into scope due to pensions no longer being exempt. This brings a total of 288 local authorities where average property prices and pension pots could see high levels of inheritance tax payments due. 

London and the South East remain most exposed

The highest potential inheritance tax bills remain concentrated in prime London boroughs and most affluent southern areas. Kensington and Chelsea could see average estate values exceed £1.3 million, with estimated IHT liabilities above £400,000 once pensions are included. Camden, Richmond upon Thames, Elmbridge, and Hammersmith & Fulham all show projected tax bills comfortably above £200,000. Wider commuter-belt locations such as Guildford, St Albans, Windsor & Maidenhead, and Wokingham also remain firmly within taxable territory.

For those in these regions, including pensions in the estate calculation may materially increase eventual tax exposure, reinforcing the importance of proactive planning.

Note: These calculations do not take into account the Residence Nil Rate Band (RNRB) which is an extra £175,000 per person if a main residence is left to direct descendants. This is because not everyone is eligible for this additional allowance.

Mid-priced regions: where pensions could tip estates into inheritance tax

Mid-priced regions across the West Midlands, East Midlands, South West, East of England, and South Wales may experience the most meaningful shift from the 2027 reform. Average property values in these areas have historically fallen just below IHT thresholds, leaving estates untaxed. Once moderate pension savings are added, combined estate values can exceed the tax-free allowance, creating a modest but material liability.

Counties such as Warwickshire, Worcestershire, Staffordshire, Leicestershire, Derbyshire, Gloucestershire, Somerset, Norfolk, Suffolk, and parts of South Wales could face estimated IHT bills between £10,000 and £60,000. While far lower than in prime London, this represents many families’ first exposure to inheritance tax, highlighting the growing importance of location-aware estate planning.
 

Note: These calculations do not take into account the Residence Nil Rate Band (RNRB) which is an extra £175,000 per person if a main residence is left to direct descendants. This is because not everyone is eligible for this additional allowance.

This shift is significant not because of the scale of tax involved, but because it represents the first entry into the inheritance tax system for many families. Even relatively modest tax liabilities can reduce the value of intergenerational transfers, create liquidity pressures for beneficiaries, or force the sale of assets that were expected to remain within the family. As pensions move inside estate calculations, understanding true exposure and aligning retirement, gifting and estate-planning decisions accordingly becomes increasingly important. Early, location-aware planning will therefore play a key role in helping households in mid-priced regions use available allowances efficiently and protect long-term family outcomes.

Northern and Coastal Regions largely remain below the threshold

When taking pensions into account. Many northern, Scottish, Welsh, and coastal areas continue to sit below inheritance tax thresholds, even when estimated pension wealth is factored in. Locations such as Burnley, Hartlepool, Blackpool, County Durham, Inverclyde, and Merthyr Tydfil illustrate this trend, showing that estates in these regions are less likely to face immediate IHT liability. However, despite the lower current exposure, factors such as growing property values, increasing estate complexity, and potential future policy changes mean that careful planning remains important across the UK.

Inheritance tax is increasingly becoming a property tax by default. Many people don’t consider themselves wealthy, yet long-term house price growth – particularly in London and the South East – means their estates can face substantial tax bills. Without proper planning, beneficiaries may be forced to sell assets simply to settle the liability. Early advice and structured estate planning can significantly reduce the eventual tax burden.

Pensions have long sat outside inheritance tax calculations, so bringing them into scope has a major regional impact. In high-property-value areas, the effect is dramatic, but even in more affordable regions, families who previously expected no inheritance tax may now face a bill. Planning early will be crucial.

Marriage, Tax thresholds and changing demographics

Currently, married couples or civil partners can combine their inheritance tax allowances, meaning they benefit from higher thresholds. For instance, the individual nil-rate band is £325,000, plus there is the residence nil rate band of £175,000 (RNRB) if you are passing your main residence onto direct descendants such as children or grandchildren. But if you are married, you can pass your allowances to a surviving spouse to gift on their death, IHT free, which could mean gifting up to £1 million, as long as the overall estate is less than £2 million.

However, declining marriage rates and an increase in couples choosing to remain unmarried could leave more families exposed. Unmarried partners cannot combine allowances, so each person is subject to the thresholds individually. This means that even if they are leaving their estate to their long-term partner, IHT will be due on anything above £325,000. As a result, even households with moderate property and pension wealth may now fall into the 40% IHT bracket if they are not legally married.

In other words, while marriage can still provide a buffer against inheritance tax, the trend toward fewer legal unions means more couples could be caught by the 2027 reforms than in previous generations.

Why planning matters more than ever

For people in London, the Home Counties, and even mid-priced regions, inheritance tax is no longer an issue reserved for the ultra-wealthy. Long-term homeowners, particularly those who have benefited from significant property appreciation or built moderate pension savings, may now find their estates subject to substantial tax bills. The 2027 change to include pensions in estate calculations has the potential to push households that previously expected no liability into the inheritance tax net. While this may sound scary, according to HMRC, only 1 in 20 estates in the UK pays inheritance tax. There is normally no tax to be paid if:

• The value of your estate is below the £325,000 threshold known as the nil rate band
• You leave everything above the threshold to your spouse or civil partner, or
• You leave everything above the threshold to an exempt beneficiary, such as a charity or a community amateur sports club, or
• If you give away your main residence to your direct descendants, your threshold can increase to £500,000.

If you are at risk of falling into the threshold, effective planning strategies are now crucial and can include: 

• Lifetime gifting strategies: Regularly transferring assets during your lifetime, within allowance limits, can reduce the size of your estate and minimise future tax exposure. These can include gifts to children, grandchildren, or charities.
• Trust structures: Establishing trusts can help manage how and when beneficiaries receive assets while potentially providing relief from inheritance tax. Trusts can also protect assets in complex family situations or blended families.
• Pension planning: Reviewing how pension wealth fits into your broader estate plan is vital. Strategies may involve carefully timing withdrawals, considering joint spousal planning, and understanding the implications of death benefits.
• Business Relief-qualifying investments: For business owners, structuring investments to qualify for Business Relief can reduce IHT liability on certain shares and assets.
• Reviewing ownership structures between spouses: Ensuring that assets are owned in the most tax-efficient way between spouses can maximise allowances and reduce the overall estate exposure.

In short, the new rules mean that inheritance tax planning is no longer optional but a necessary part of financial management, even for households that previously believed they were unaffected. Acting early allows families to make informed, strategic choices that safeguard their estate and support the smooth transfer of wealth to future generations.

If you would like to discuss your personal financial situation, why not get in touch for a free initial conversation to see how we can help.

* Figures are based on average property prices (November 2025) by local authority. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. 

The value of your investments can go down as well as up, so you could get back less than you invested.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.