The New Rules for Wealth, Investment and Inheritance 

Today’s Budget introduces a series of tax measures that will affect individuals, investors, estates, and business owners over the coming years. The changes rely heavily on threshold freezes and targeted adjustments to investment-related tax reliefs.

Although many of the measures maintain existing structures, the cumulative impact will be significant, due to the prolonged period over which they apply. The following sections summarise the main updates in relation to personal tax, Inheritance Tax, savings and investment income, ISAs, and various tax-incentivised schemes. 

Personal tax thresholds: a long freeze becomes longer 

The Budget confirms that Income Tax thresholds, National Insurance contribution thresholds for employees and the self-employed, and the Plan 2 student loan repayment threshold will all remain frozen at their current levels until at least 5 April 2031. Holding thresholds constant while wages increase over time results in more taxpayers moving into higher marginal rate bands. This is commonly referred to as fiscal drag. 

Individuals whose income is expected to rise over the coming years may wish to review their tax position, as the real value of these thresholds will gradually decline.  

Dividend and savings income tax 

From 6 April 2026, the tax rates applying to dividend income will increase by 2%. The basic rate will increase from 8.75% to 10.75%, and the higher rate will increase from 33.75% to 35.75%. The additional rate will remain unchanged at 39.35%. 

From 6 April 2027, tax on savings income will increase by 2%. This means the basic rate will increase from 20% to 22%, the higher rate from 40% to 42%, and the additional rate from 45% to 47%. 

There will be a separate tax rate for property income and the increased tax rate of 22%, 42% and 47% will apply from April 2027. 

The dividend allowance of £500, the starting rate for savings of £5,000 and the personal savings allowance (£1,000 for basic rate taxpayers and £500 for higher rate taxpayers) remain in place. 

With the freezing of the allowances and thresholds and the increase in tax rates, these changes will impact a broad range of taxpayers, including those in receipt of dividends from owner-managed businesses, investors with portfolios, and individuals holding significant cash savings outside tax-advantaged wrappers. Reviewing your remuneration planning, how investment income is structured, and considering the use of available tax shelters, may help mitigate exposure to the increased rates. 

ISA Allowances 

Overall, the ISA limit will remain at £20,000. However, for those aged under 65, the maximum amount you can deposit into a cash ISA will reduce from £20,000 to £12,000 with effect from 6 April 2027. The remaining £8,000 of the ISA allowance can be invested in stocks and shares. 

 Those aged 65 and over will still be able to invest up to £20,000 into a cash ISA each year. 

Inheritance Tax thresholds and reliefs 

The following thresholds and allowances will remain fixed until at least 5^th April 2031: 

• Inheritance tax nil-rate band of £325,000; 
• Residential nil-rate band of £175,000  
• The combined £1 million Agricultural Property Relief (APR) and Business Property Relief (BPR) 

The residential nil rate band is only available to those with an estate valued at less than £2 million, any value over this threshold means the residential nil rate band is subject to tapering, increasing the effective rate of tax payable. 

It is welcome news that the Government announced that any unused APR and BPR allowances can be transferred on death to the surviving spouse or civil partner. 

VCT and EIS reforms 

The Budget introduces several significant updates to the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) rules, widening the range of companies that can qualify for investment while adjusting the tax relief available to investors. 

Larger companies can now qualify 
The size limits for companies eligible for EIS and VCT funding are being increased. 
A company will now be able to have: 

• up to £30 million in gross assets before an investment (previously £15 million), and 
• up to £35 million immediately afterwards (previously £16 million). 

This change allows more established growth-stage companies, not just very early-stage businesses, to access tax-advantaged investment. 

Companies can raise more each year 
The annual amounts a company can raise under EIS or from VCTs are also doubling: 

• from £5 million to £10 million per year, and 
• from £10 million to £20 million for knowledge-intensive companies (for example, those in advanced R&D or technology sectors). 

Higher lifetime fundraising limits 
The total amount a company can raise over its lifetime under the schemes is also increasing: 

• from £12 million to £24 million, and 
• from £20 million to £40 million for knowledge-intensive companies. 

These increases mean companies can now stay within the EIS/VCT framework for longer, as they grow. 

Reduction in VCT Income Tax relief 
The upfront Income Tax relief available to VCT investors will reduce from 30% to 20%. 
Other features of VCTs, such as tax-free dividends and no Capital Gains Tax on disposal of VCT shares, remain unchanged. 

Overall impact 
The changes expand the range of companies that can access EIS and VCT funding, supporting later-stage growth companies rather than only very early-stage start-ups. For investors, the main change is the reduction in VCT relief, which may influence investment appetite. Advisers and clients who make regular use of VCTs or EIS should review their plans in light of the revised limits and relief levels. 

Summary of expected impact 

Overall, the Budget largely maintains the current tax framework. However, the continued freezing of thresholds and allowances, along with higher tax rates on investment and property income, is expected to affect planning decisions over the next five years. The combination of frozen thresholds and increased taxes on investment income is likely to raise overall tax liabilities for many households. 

Taxpayers may want to reassess their investment structures, estate planning, remuneration arrangements, and use of allowances to ensure they remain compliant with the updated rules. Given that many of these measures will remain in effect until 2031, there is an opportunity for strategic planning to help mitigate their cumulative impact.