Key changes impacting your money in 2026 and beyond

You can also listen on: Spotify, Apple Podcasts, Amazon

We kick off discussing the key personal finance and tax changes that will come into force in 2026. Among the topics discussed by Kyle and interactive investor’s personal finance editor Craig Rickman are “fiscal drag”, the state pension, dividend tax increases, and inheritance tax (IHT) changes to AIM shares. The duo also share their thoughts on big changes taking effect from April 2027, namely the cut in the cash ISA allowance and unspent pensions no longer being exempt from IHT.

• Invest with ii: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Kyle Caldwell, funds and investment education editor at interactive investor: Hello, and welcome to our latest On the Money podcast and a very happy new year to all our listeners.

In this episode, we’re going to be covering the key personal finance changes in 2026 that will impact your money. Joining me to discuss this topic is Craig Rickman, personal finance editor at interactive investor. Craig, thanks for coming on.

Craig Rickman, personal finance editor at interactive investor: Thanks very much for having me.

Kyle Caldwell: So, Craig, we’ll be talking through key policies that are going to be implemented in 2026, but we’re also going to look ahead - towards the end of the podcast - at some of the changes that are going to be coming into place in 2027.

First, let’s start off with tax. In the Autumn Budget, we didn’t have any income tax rises, but that’s not to say that people aren’t going to be paying more tax in future.

In fact, many people will be due to the extension of the existing freeze on income tax and national insurance thresholds. They’ve been extended by three years from 2028 to 2031.

Craig, could you unpick the impact this is going to have on a lot of people?

Craig Rickman: Well, it will have a big impact on a lot of people. Essentially, when tax thresholds are frozen, as people’s income naturally ticks up over time, more people, millions more people, will trip into higher rates of tax without necessarily feeling better off. This phenomenon is known in industry jargon as ‘fiscal drag’, and it has the greatest impact over time. And in 2026, income tax and national insurance thresholds will remain frozen.

So, that’s something for people to watch out for, particularly as we head towards bonus season. If you receive a bonus, it could trip you into a higher-rate tax bracket. It could also expose you to some of the tax traps that line the system. If you start to earn more than £60,000, you can pay a charge on child benefit, so that would impact the parents of young children.

At £100,000, for every £2 you earn above a £100,000, your personal allowance - which is £12,570; that’s the amount you can earn every year tax free - is withdrawn, so essentially once you earn £125,140, you lose your personal allowance and you pay an effective tax rate at either 62% if you’re under state pension age or 60% if you’re above.

The reason for the difference there is because if you’re under state pension age, you pay national insurance. So, this can have a big impact over time, and it’s something for people to watch out for.

Kyle Caldwell: To put the issue into perspective, in 2010, only one in 10 taxpayers paid higher-rate tax. At the moment, it’s not far off being one in five. And, in 2030, it’s thought that around a quarter of people will pay either higher-rate tax or be additional rate taxpayers. Whereas under the old inflation-linked system, you’d normally only get bumped up into a higher tax bracket if you’d enjoyed a notable increase in your income.

Craig Rickman: There’ll be some stats published around the number of people being impacted by the 60% tax trap above £100,000. I think when we did some research looking at people over state pension age, it had tripled in a three-year period just because of that threshold being frozen and people’s incomes ticking up.

And especially, like you say, tax thresholds are going to remain frozen until 2031. So, it’s something to watch out for in 2026 and every year thereafter until 2031.

• Our income tax bills are rising: the lowdown on fiscal drag
• Investment outlook: expert opinion, analysis and ideas

Kyle Caldwell: You just touched on the state pension, so let’s move on to it. In April, the state pension is going to rise by 4.8%, and it’s the earnings element of the triple lock equation that is being used once again.

So, state pensioners will receive an above-inflation increase on their state pension. So, in terms of things to watch out for from a personal finance perspective in 2026, this is one of the positives.

Craig Rickman: Definitely. Particularly for those on lower incomes who rely heavily on the state pension, that’s a really important increase, but it also illustrates the importance for those who aren’t at state pension age, to make sure that you get the full amount.

There are very few people who could rely on the state pension to make ends meet in retirement. You’re almost certainly going to need to have some extra savings. But that said, it’s a form of guaranteed income that uprates every year and, due to the triple lock mechanism, the increases can be really healthy.

So, it’s good news for people who are either already retired or approaching retirement. But for those who are looking to retire in the future and haven’t reached state pension age, it really highlights how important it is.

Kyle Caldwell: While that’s a positive for those receiving the state pension, there are lots of negatives for others. For investors who have money outside tax-free wrappers, such as an ISA and a SIPP, and are generating income from investments, they are going to be hit with a higher rate of dividend tax. This is also going to impact a lot of small business owners negatively as well. Could you talk us through it, Craig?

Craig Rickman: Sure, yeah. So, this was an announcement in the Autumn Budget. There will be increases to the rates of dividend tax from April. The basic rate is rising from 8.75% to 10.75%. That’s paid on dividends when added to other income that fall below £50,270 and then down to the tax-free allowance of £12,570. So, it’s in between that bracket.

On anything above that, at the higher rate, so from £50,270 all the way up to the additional rate, the rates of dividends there are going to increase from 33.75% to 35.75%, but at the additional rate, that is going to remain the same at 39.35%.

The dividend allowance, which is the value of dividends that you can receive every year tax free, is remaining at £500. But this change is a further blow to investors who are already facing high capital gains tax bills because capital gains tax rates on shares were increased at the previous Budget.

We should also note that the tax-free allowances that apply to dividends, as I’ve just mentioned, and capital gains have been hacked away at in recent years, so were less generous.

So, for holdings outside tax wrappers, the tax penalties over the past few years, or the tax rates and the amount that you could potentially pay, have increased and for some people that might be quite a steep increase.

• Key tax changes impacting investors in 2026
• Interest rates, inflation and the economy in 2026

Kyle Caldwell: And it’s not the only allowance or tax incentive that has been hacked away. There have been a couple of changes that are going to negatively impact UK smaller companies and investors backing entrepreneurial businesses.

The first one, and this was announced a while ago, as part of the inheritance tax changes, the amount of tax relief that you can get through investing in AIM-listed companies is going to be cut from a 100% to 50%, and that comes into place at the start of the new tax year in April.

Craig Rickman: That’s right. So, as things stand, if you invest in AIM shares and they are in eligible companies and you hold them for two years, they can be a 100% free from IHT. That’s been quite an attractive thing for investors to use, especially those with an IHT problem, but that’s going to become less generous.

So, effectively, you will pay 20% inheritance tax on those. You can still use your tax-free lifetime allowances. So, the nil rate band, which is £325,000 and the residence nil rate band. So, it’s anything that’s over the top of that. You can still leave them tax free to spouses and civil partners.

But it’s another change to watch out for, particularly those who like to use and invest in smaller companies or in AIM shares for the inheritance tax breaks.

Kyle Caldwell: Another change relates to venture capital trusts (VCTs). So, this was announced in the Autumn Budget. The amount of upfront tax relief investors receive for backing small UK businesses is going to be cut from 30% to 20%. Craig, could you talk through this? Do you think this will mean that less money will go into venture capital trusts?

Craig Rickman: What we’ve seen already and according to reports is that the number of subscriptions, or the interest in in VCTs, increased after the Budget because, naturally, investors who are thinking about using them are going to want to use them during this tax year while the rate of upfront relief is still 30% before it falls to 20%.

Like we’ve seen in the past, investors are sensitive to changes in the rates of upfront tax relief on venture capital trusts. It’s one of the big attractions of using them. VCTs aren’t for everyone. I guess that applies to AIM shares as well because you’re investing in smaller companies. There are bigger risks involved, there’s more volatility, there’s more chance of your investments losing money. So, they are not for everyone.

But people still do use them and tax perks is one of the main incentives for doing so. Particularly with VCTs, I think we will see more interest in them as the new tax year draws closer for people to capitalise on the more generous rate.

Kyle Caldwell: And, of course, it goes back to the old saying of ‘don’t let the tax tail wag the investment dog’. It’s really important that people go away and do their own due diligence, and that they are not just purely investing for the tax perk.

Craig Rickman: Absolutely. VCTs have often been popular with those who big earners and are restricted by things like the tapered annual allowance. If your income is more than £200,000, you can start to lose your annual pension allowance. It’s reduced, and it can reduce as low as £10,000.

So, for some big earners, if they only put £10,000 into a pension and want to get upfront tax relief, some of them may have turned to things like VCTs. Again, like you say, VCTs aren’t right for everyone. There are risks involved and some of the charges can be quite high.

It doesn’t mean that you shouldn’t look to do them and it doesn’t necessarily mean you shouldn’t look to do them after April, but there are things to consider before putting your money into those sorts of investments. It’s typically those who are experienced and who can afford to stomach any potential losses.

Kyle Caldwell: So, let’s now move on to changes to personal finance rules that are going to come into play in 2027, which means that people have plenty of time to get their heads around the new rules and plan accordingly.

The first one is the cut to the cash ISA allowance. So, it was announced in the Autumn Budget, that the cash ISA allowance will be cut from £20,000 a year to £12,000 a year, and that cut will take place from April 2027. If you’re aged 65 or over, you are excluded from it - you’ll still be able to put £20,000 a year into a cash ISA.

Now, Craig, we did a reaction podcast following the Autumn Budget where we gave our initial thoughts on the cut to the cash ISA allowance. Since then, some documentation has been published saying that cash-like investments may no longer be included in the stocks & shares ISA from April 2027 due to the cut to the cash ISA allowance. Could you talk us through what we know so far? Details are very thin on the ground, but there has been a bit of information.

• Cash ISA limit cut to £12,000 in bid to boost UK stock market
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Craig Rickman: Yes. So, they’ve said that cash-like investments will be prohibited. So, we can assume that means things like money market funds, but that’s another thing to watch out for this year. We’ll be hoping for some clarity.

Certainly, investors will be hoping for some clarity on exactly what that applies to because, as we’ve seen particularly this year, there’s strong appetite for things like money market funds for investors within their ISAs and SIPPs.

We’re going to have to get some more clarity before the change to cash ISAs comes in in April 2027.

Kyle Caldwell: My thoughts are that if you put any barrier or restriction in place, then it’s not going to be very helpful. It’s not going to inspire people thinking of switching from a cash ISA to a stocks & shares ISA if they are then told that you can’t invest in one of the lowest-risk type of funds out there.

At the time of recording, most money market funds are offering a yield of around 4%. The yield’s not guaranteed, it just reflects the amount of income that’s being generated by the fund manager running that fund.

But, as mentioned, they are a very low-risk type of fund, and they are the investment version of a ‘cash park’, a place to put your money before you decide what to do with it. They are not long-term investments to hold for 10 or 15 years. But at the moment, money market funds offering a yield of 4% are quite a good place for some investors to put some of their cash as part of their overall stocks & shares ISA allowance.

I also wonder how this would be administered. Who’s going to police this? Is the onus going to be on providers or on individuals? I think it could get quite messy if they are going to restrict a particular fund type from a stocks and shares ISA when that fund type is already in that tax wrapper.

Craig Rickman: Absolutely. I think messy is the word. And it’s something that not just us at interactive investor, but other companies, other financial firms, have been campaigning for to remove some of the mess within the ISA landscape and make things simpler for investors and savers to understand and try and put their money in the right places.

It could make a bit of a pig’s ear of things. There are good reasons to hold money market funds in a stocks & shares ISA. Like you say, it doesn’t have to be for long periods, but especially as from April 2027, you will no longer be able to transfer from a stocks & shares to a cash ISA.

So, if you need to keep the money in something which is more capital secure and less volatile for a short period because you’ve got a purpose for the money soon - I’m thinking perhaps those who were investing in a stocks & shares ISA for several years but now want to use the money to buy a house - then [you] are going to want to park the money somewhere safe, in a short-term home, and it would seem unfortunate and perhaps unfair [to] then potentially be subjected to tax on that money even for a short period of time.

So, it will be interesting to see how that develops, and we’ll hopefully get some more info.

• Money market funds explained
• Fund Battle: which are the best money market funds?

Kyle Caldwell: We’ve spoken about this on the podcast before, but the gap between a saver becoming an investor, needs to be plugged by better education. We produce lots of educational content on interactive investor in different formats, including written and video form.

With money market funds, the message really is that they are a defensive asset to consider as part of a well-diversified portfolio. It shouldn’t be viewed as a type of fund that you put everything into. It’s a type of fund that, as I said, sits in your defensive bucket and goes alongside other investments that are more growth-producing, such as funds that invest in global shares.

Craig Rickman: Yeah, absolutely.

Kyle Caldwell: As you mentioned earlier, Craig, we’ll hopefully get greater clarity regarding what is meant by cash-like investments potentially not being included in stock & shares ISAs from April 2027 onwards.

If it is the case that money market funds are excluded, at least ISA savers and investors have plenty of time to plan accordingly and potentially consider other types of defensive funds that could fit into that defensive buffer in a portfolio.

In terms of other changes cropping up in 2027, another big one is changes to inheritance tax related to pensions. In short, from April 2027, you can no longer pass on your pension inheritance tax free. This is going to have a huge impact on tax planning and a number of individuals. It’s going to impact a huge number.

• What to consider before gifting your pension to swerve IHT​​​​​​​
• Is it possible to give away my pension savings to avoid IHT?

Craig Rickman: Yeah. This is a massive, massive change to the IHT system, to the pension system. As you say, from April 2027, essentially, pensions will no longer be exempt from inheritance tax. So that’s the case with most pensions these days. If you die, you can pass it to whoever you like, inheritance tax free.

If you pass away after age 75, whoever receives the money could pay income tax on any income that they withdraw. But from April 2027, when someone dies, if they are beyond the age of 75, they could pay inheritance tax and income tax as well.

There’s important things to flag around it. One is that it doesn’t necessarily mean whoever inherits the pension will still pay inheritance tax. There’s still your lifetime tax-free allowances, so it’s only when added to your other assets if it’s in excess of that, it could potentially be taxed at 40%.

The spousal and civil partner exemption remains as well. So, if you leave the money to your husband, wife or civil partner, then there’s no inheritance tax to pay.

It’s an enormous change. Although that change isn’t coming in for more than a year, people who will potentially be affected by it will inevitably start to plan ahead. Some people have already started planning for it. So, doing things like withdrawing money from their pensions sooner than perhaps they would have done otherwise and passing the money on to try and avoid inheritance tax. Mainly to avoid this potential income tax and inheritance tax double whammy after the age of 75, which could see some incredibly punishing tax rates, particularly if the person who draws them out is paying one of the higher rates of tax. We could see effective tax rates in the mid 60s or perhaps even higher.

So, if it’s something that potentially affects you, think about it and start to plan well ahead of the change coming in.

Kyle Caldwell: The final change coming into force in April 2027, which was announced in the Autumn Budget, is the increases in savings interest. So, the savings interest is going up by two percentage points for both basic-rate taxpayers and higher-rate taxpayers. Craig, could you unpick the details?

Craig Rickman: Sure, yeah. I think the first thing to say around this is that it’s a bit of a blow to savers, particularly considering the cuts to cash ISAs for those under 65.

Not only will they not be able to put as much into a cash ISA every year, but on any interest that they earn outside of - there are some tax-free allowances that you can use to set against savings interest, which is determined by which tax bracket you fall into, and I’ll go into those in a second - ISAs, they could be paying potentially higher rates of savings tax too.

So, what’s changing? The basic rate of savings interest, which for 20% taxpayers, or interest that falls into the 20% tax bracket, will go up to 22%. The 40% goes up to 42%, and the 45% rate will go up to 47%.

So, in terms of the tax-free allowances that you can use to set against them, if you are a basic-rate taxpayer, it’s £1,000. There’s actually a bigger allowance. If your earnings are particularly low, you can potentially get £5,000 of savings interest tax free. But for most people, if you earn more than around £17,500, then your savings allowance would be £1,000.

For higher-rate taxpayers, interestingly, it halves. So, if you earn more than £50,271, your savings allowance halves to £500. If you’re an additional-rate taxpayer, you don’t get a savings allowance. So, on anything held outside tax wrappers after April 2027, if you are an additional rate taxpayer, so earn more than £125,140, you will pay 47% tax on those savings. It’s a pretty high rate.

So, again, that’s something for people to think about this tax year ahead of that change coming in.

Kyle Caldwell: Craig, thank you very much for your time in talking through all the changes from a personal finance perspective in 2026 and beyond.

Craig Rickman: Thanks as always for having me.

Kyle Caldwell: And that’s it for our latest On the Money podcast episode. Thank you very much for listening. As usual, you can find plenty of insights and practical pointers on the interactive investor website, which is ii.co.uk. We always love to hear from our listeners, and we will in future shortly be doing a Q&A episode. So, if you have an investment or a pension-related question, then do get in touch.

You can email OTM@ii.co.uk, and I’ll hopefully see it again next week.