- Advisers play a crucial role in assessing the financial planning needs of their clients and the Budget changes may require some adjustments to client plans.
- Vanguard’s commitment to delivering value to investors recognises the crucial role of good financial advice in helping individuals achieve their financial goals. Use our client-friendly explainers to support effective conversations.
- No two clients are identical. The extent to which the Budget changes will impact each client will vary. It is important to be proactive, but also make the engagement on the Budget relevant to the client.
"The changes offer an opportunity for financial advisers to engage with clients and lead them through the evolving fiscal landscape."
Senior Specialist, Adviser Research Centre, Vanguard, Europe
The 2025 Autumn Budget brought with it changes that may affect clients’ financial plans and investment strategies, including an increase to tax on dividends, savings and property income, plus a decrease to the cash ISA allowance to £12,000 from April 2027.
The chancellor also announced an extension to the freeze to income tax thresholds (first introduced in 2022) and a £2,000 cap on the amount of salary that can be sacrificed into pensions before National Insurance applies. Income tax relief on Venture Capital Trusts will be reduced from 30 per cent to 20 per cent from April 2026.
While some of the changes announced by the Chancellor may seem tough on savers, the broader goal is to encourage more people to take advantage of the greater growth potential that investing can offer. As with last year’s Autumn Budget, the changes offer an opportunity for financial advisers to engage with clients and lead them through the evolving fiscal landscape.
Vanguard’s commitment to delivering value to investors recognises the crucial role of good financial advice in helping individuals achieve their financial goals. In this article, we run through the key policy changes and, importantly, we’ve produced a client-friendly download that may be useful in explaining the changes and their implications.
Changes to ISA allowance
The overall ISA allowance remains unchanged at £20,000. However, for those aged 65 and under, the amount you can put into cash ISAs will be capped at £12,000 a year from 6 April 2027, with the rest of the allowance reserved for investments. People aged over 65 will still be able to put up to £20,000 into cash ISAs.
This is a significant change for savers aged 65 and under. Currently, clients can split a £20,000 allowance between the different types of ISAs (including cash ISAs and stocks and shares ISAs). But from 6 April 2027, investors will only be able to put up to £12,000 of their annual ISA allowance into a cash ISA. The new cap is part of the government’s ambition to encourage more people to invest.
The chancellor also introduced measures to help investors identify UK-focused portfolios as well as funds dedicated to the UK. The measures include a pledge by investment platforms, including Vanguard, to highlight such funds on their websites. This will come into effect by April 2026.
Income tax threshold freeze
There was some speculation that the chancellor would increase income tax rates, but this did not happen. However, income tax thresholds have been frozen for another three years until the end of the 2030-31 tax year. This is a significant change from last year’s Budget, when the chancellor said the thresholds would start rising again from 2028 in line with inflation. The thresholds were frozen at their current levels by the previous Conservative government in 2022.
The announcement means that the personal allowance (the amount of tax-free income a client can earn each year) will remain at £12,570 until April 2031. The higher-rate tax threshold will stay at £50,270 and the additional-rate threshold will remain at £125,140.
With income tax thresholds frozen, clients' increasing earnings may push them into higher tax brackets, resulting in greater tax liabilities. To help mitigate this greater tax drag, advisers can work with their clients make efficient use of allowances and to structure their wealth in an appropriate way. Our client-friendly explainer outlines ways they can reduce the impact of frozen income tax thresholds.
Changes to pension salary sacrifice
The chancellor outlined a £2,000 cap on the amount of salary that can be sacrificed into pensions before National Insurance applies. This cap will come into effect from April 2029. While clients in salary-sacrifice schemes will pay more in National Insurance contributions, if they change their behaviour and cut pension contributions to avoid this change, they could be worse off in retirement.
Our calculations show that for a basic-rate taxpayer who sacrifices £5,000 a year into a pension, their take-home pay will reduce by £20 a month once the changes come into effect. A higher-rate taxpayer who sacrifices £5,000 a year will see their take-home pay fall by £5 a month.
Meanwhile, the full state pension will rise to £241.30 a week in the 2026-27 tax year.
Despite some speculation, the Budget contained no changes to pension tax relief or the amount of pension tax-free cash you can take in retirement.
Dividend tax changes
Dividend tax rates are set to increase from 6 April, 2026. For clients, this means basic-rate taxpayers will pay 10.75% (up from 8.75%) and higher-rate taxpayers 35.75% (up from 33.75%) on dividend income above the £500 annual allowance. The additional-rate tax remains at 39.35%. This reduces the tax efficiency of assets held outside of a tax wrapper, creating even more reason to proactively make use of available allowance.
Use our client-friendly Bed & ISA explainer to support client conversations where appropriate.
Tax on savings interest
From 6 April 2027, savings interest above the personal savings allowance (£1,000 for basic-rate, £500 for higher-rate, and £0 for additional-rate taxpayers) will be taxed at higher rates: 22% for basic-rate, 42% for higher-rate, and 47% for additional-rate taxpayers. Clients may want to review their savings strategies to minimise exposure to these increased tax rates.
Your clients need you
Financial advisers have a crucial role in helping clients meet their long-term financial goals. Financial planning is complicated, even more so when the legislation environment changes, sometimes bringing with it a need to adapt.
The changes from the Autumn Budget present an opportunity to proactively engage with clients, strengthening those relationships with reassurance and quality advice.
No two clients are identical. The extent to which these legislation changes will impact each client will vary. It is important to be proactive, but also make the engagement on the Budget relevant to the client.
Vanguard support
We’re committed to supporting advisers in guiding clients through the changes and any uncertainty that may linger over what the announcement means for investors. As part of that support, we invite you to watch our special Budget-day webinar on demand, in which our economic and financial advice experts offer their thoughts on what the changes will mean for the economy, markets and ultimately clients.
Download our client-friendly explainers on the 2025 Autumn Budget and Bed & ISA strategy to support effective client conversations.
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This is directed at professional investors and should not be distributed to, or relied upon by retail investors.
This is designed for use by, and is directed only at persons resident in the UK.
The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.
The information contained herein is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.
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