Three key takeaways from the Autumn Budget 2026

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Dave Baxter, ii’s senior fund content specialist, and personal finance editor Craig Rickman unpack the big Budget developments, from a big shift in the ISA landscape to fresh tax news, and discuss what these mean for savers and investors in practical terms.

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Dave Baxter, senior fund content specialist at interactive investor: Another year, another chancellor, another Budget. That’s what we’ve had this week.

Chancellor John Healey has unveiled a set of measures that he hopes will provide financial breathing space for individuals. That’s certainly worth you checking out, some interesting measures have been set out, but of course here at On The Money, we look at the issues affecting your savings, investments and pensions. And if we look at the Budget through that lens, there’s plenty to unpack.

So, welcome back to the show, I’m Dave Baxter and today I’m joined by Craig Rickman, our personal finance editor, to unpack what’s happened.

So, Craig, congratulations on surviving yet another Budget.

Craig Rickman, personal finance editor at interactive investor: Thank you.

Dave Baxter: First of all, how does it range on the spectrum of big blockbuster measures versus being a bit of a damp squib?

Craig Rickman: That’s a good question. So, compared to the first two Budgets of this parliament, it was a calmer affair. I mean, in 2024 and 2025, we saw collective tax hikes in the region of £66 billion. So, they were really big punishing Budgets.

The Budget yesterday, in terms of tax increases, we’re looking at around £6 billion, so it was smaller. But there were still some sneaky things in there that savers particularly may need to watch out for from the new tax year.

Dave Baxter: So, we are going to try and unpack that in a relatively simple way. We’re going to focus on three big takeaways for people from this latest fiscal event.

Let’s kick off with number one then, which is, to use the favoured parlance of the political journalists, a big U-turn, big reversal, something that really we wouldn’t have expected even a couple of weeks ago.

Craig Rickman: Yeah. So, the reversal to the proposed ISA changes, which I think would have been a massive, massive shock, a potential candidate for the sort of rabbit-out-of-the-hat moment at this Budget had it not been leaked beforehand.

So, there were reports, and it seemed very credible reports on the morning of the Budget, that John Healey had decided to reverse the cuts to the cash ISA [annual allowance], which was due to fall from £20,000 to £12,000 for people under the age 65 from the new tax year.

The idea behind that, which was proposed by the previous chancellor, Rachel Reeves, was to try and encourage more people to invest, and to try and boost the UK economy.

But, obviously, the new chancellor has come in and he’s got different ideas about how to achieve that goal and we’ve got to appreciate that the government still has that aim.

But he’s decided to reverse that change and we’re assuming that they’re going to reverse these sort of anti-circumvention measures that were introduced to try and stop people gaming the new system. So, gaming the smaller allowance. Without these potential measures, people could effectively still invest in cash within a stocks and shares ISA, or invest in a stocks and shares ISA and then immediately transfer the money to cash.

So, all of that has been scrapped from the next year, which was a big shock.

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Dave Baxter: Yeah. It’s very surprising. I mean, personally, I wonder what’s driven the changes, but perhaps that’s a different discussion. I guess if we look at the practicalities, that simply means that life is a bit simpler for people using ISAs. I mean, at ii some of the most popular funds that people buy into are cash funds and so on.

So, that’s a headache that’s been removed. But the ISA landscape seems to have been almost constantly shifting in recent years, and we’ve had a few more complications, nuances and so on arising from this latest Budget.

Craig Rickman: Yes, we have. I mean, just going back into those anti-circumvention measures, I think one of the worries for investors was this 22% tax charge on uninvested cash held within a stocks and shares ISA. And also the rules around money market funds as well. So, potentially under the previous rules, if you’d have held 100% of your portfolio in money market funds, they wouldn’t qualify. But again, that’s been scrapped as well. 

So, I guess to your point, to keep the consistency there and to keep things simple, so that basically people can interact with their stocks and shares and cash ISAs from the new tax year in exactly the same way now, is good news.

Dave Baxter: Yeah.

Craig Rickman: It’s probably a frustration for some people that it’s arrived so late before the changes because many organizations had planned for this change coming in, savers and investors had planned for it as well. But my view is they’ve arrived at the right decision however late that is.

But to your other point around keeping things simple with the ISA landscape, it seems like from this Budget that things, in some respects, are going to get a bit more complicated with potentially two more ISAs to enter the fray.

Dave Baxter: It’s quite exciting, isn’t it? We do love a new ISA.

Craig Rickman: We do, the UK certainly does, yeah.

Dave Baxter: Can’t get enough. So, I’ll let you choose which one, but what are we getting?

Craig Rickman: So, [with] one of these ISAs, this again taps into trying to foster this investing culture in the UK because the government is concerned that too many people are putting their long-term wealth into savings and cash-like assets when they could be investing it. The big task now is working out how can that change happen. 

And so Healey, I guess, is looking at the carrot rather than the stick approach. So, rather than just squashing the amount you can hold in cash ISAs, he’s looking to introduce a ‘Starter ISA’, which he mentioned in the speech. He mentioned it as a ‘Starter ISA’ , but in the red pages there’s no mention of that specific phrase.

But the idea there - and we still need to await the finer details on this - is to try and encourage a new wave of investors into the ISA landscape.

Dave Baxter: Yeah. I think there was some mention in the speech, or the summary, of developing something with the industry, but we haven’t even yet had a consultation on what this Starter ISA could be.

So, it will be interesting to see what form it could take. I mean, whether it’s some kind of tax benefit for first-time investors or…I don’t know whether you have any ideas of what could emerge?

Craig Rickman: Well, Martin Lewis, the well-known consumer champion, has apparently been campaigning for this for some time, and I read something from him yesterday, and one of the aspects that he thinks could work is some kind of bonus on contributions.

He mentioned 5% and I assume that would then be paid for, or funded by, the government to try and give people an extra incentive to invest their money in a stocks and shares-style ISA instead of a cash ISA.

But I think, like you say, we’re still very much awaiting the finer details on this. But I think it will be interesting to see what they come up with because the idea behind it is laudable to try and get people to invest, but as we know, this isn’t an easy task.

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Dave Baxter: Yes. It’s tricky, isn’t it. I mean, there’s so much that contributes to whether people are eager investors, there are a lot of different measures and you’d kind of see how this combines, and it’ll be interesting to see what fresh details emerge.

Looking at the other developments, by now we’re very accustomed to the idea of ISAs for people looking to buy their first property, and again we’ve had some fresh news there.

Craig Rickman: We have. So, another new ISA, the First-Time Buyer ISA, which we’ve known about for a few months, but we got some more detail at the Budget and in the red pages about exactly how this is going to work.

So, this has been designed to replace the Lifetime ISA. So, it’s probably best to go into a bit of detail about the Lifetime ISA, how it works and why it’s being scrapped.

So, the Lifetime ISA has a dual purpose. You can either use the money to buy a first home, or you can take the money out when you’re aged 60 without a penalty. I’ll go into a bit more about that in a second.

The big carrot with the Lifetime ISA is that you can put in £4,000 a year and you get a 25% bonus on that. So, if you put in £4,000 during the year, £1,000 is added in, so you get £5,000 invested. So, you know, a good deal.

But the government has decided that the product isn’t quite working as it should. And so, it announced last year that it was going to be replaced. We found out a few months ago that it was going to be replaced by a First-Time Buyer ISA, and now we’ve got some more details.

So effectively, with the First-Time Buyer ISA, as the name suggests, it’s focused purely on buying a first home. That retirement element to it has been kiboshed. In a way, there’s still a lot of similarities with the Lifetime ISA, so it’s still contributions up to £4,000 that will attract a £1,000 bonus. There’s a maximum house price, which has been one of the sticking points with the Lifetime ISA.

Dave Baxter: And what is that? Is that £450,000 in London?

Craig Rickman: Yes, £450,000, which, to your point, has made it very difficult for people in London and the South East to use the Lifetime ISA to buy a property, because if you want to use your ISA funds to buy the property but it’s worth more than that figure, then there’s a withdrawal penalty. Well, there’s actually some news on that as well.

Dave Baxter: Yes. This is interesting and I think welcome because, I suppose, there are two chief criticisms of the LISA. One is the dual purposes, which creates a bit of a conflict and two, of course, as you alluded to, this penalty.

So, if you don’t qualify for the bonus because of the valuation of a property, which is a very likely outcome in somewhere like London, then you can end up getting less than you put in because of this penalty.

Craig Rickman: Yeah, so you get essentially a 25% boost on the way in, but pay 25% on the way out, but that’s based on the total value of your fund, so, to your point, you could have ended up in a situation where the penalty is bigger than the gain, or the upfront bonus, that you’ve had.

But interestingly, from today in fact, the government has reduced that penalty on the Lifetime ISA from 25% down to 20%. So, that’s a positive for people who are using the Lifetime ISA to buy their first home.

But it’s created this situation, like we were saying, it’s yet another ISA. I don’t know, there’s part of me that thinks couldn’t the government have purely just made some adjustments, or some improvements, to the Lifetime ISA rather than introduce this new product? There are some other differences with the new product, mainly that there’s no cap on the age that you can pay in. With a Lifetime ISA, if you’re 40 or over, you can’t open an account. But with this new one, there’s no age cap.

But, interestingly, that maximum property value remains. The other big difference with it is that you only get the bonus when you use the money to buy a first home, so you avoid that early withdrawal charge.

But I think as people can probably tell, things are getting a bit sort of messy in this area. The new First-Time Buyer ISA will come in in 2029, so there’s still a bit of lead up to it. But some people are going to have some questions about whether it’s the right product for them to use.

Dave Baxter: Yeah, it’s interesting. It seems to be almost harking back to the original Help to Buy ISA, so it’s more of a first-time property focused product and, yes, you can run the risk of not actually qualifying for the bonus, but if so, you’re not going to lose money per se.

Craig Rickman: Yeah, that’s right.

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Dave Baxter: Before recording, you made the interesting point that some people could even perhaps find themselves holding a Help to Buy ISA, a Lifetime ISA, and then maybe in future this fresh product.

Craig Rickman: Yeah. The Help to Buy ISA is still running. It doesn’t allow new subscribers, but it’s still running. So, yeah, there’s more ISAs. One of the big things that people have been campaigning for, and that would maybe help foster this retail investing culture, is for things to be simpler rather than savers faced with a range of different ISA products, where they may struggle to know which one is right for the specific goal that they’re saving for.

Dave Baxter: I guess it’s worth pointing out that if you do already hold a Lifetime ISA, and for some reason you were to also use this new product, and then you were to buy a property, you can as far as I understand it, use both towards the bonus if you qualify.

Craig Rickman: Yes. As far as we know, you can still use the two. When this product goes live in 2029, you won’t be able to transfer from a Lifetime ISA to the First-Time Buyer ISA, but you can use both to buy your home.

Dave Baxter: Good to know. OK, so that’s takeaway number one. Lots of stuff on ISAs, lots to consider, more complication but also some good news. Let’s move to takeaway two, which is about savings interest. What’s going on there?

Craig Rickman: Yes. So, this was one of the big surprises and could be quite a painful surprise for some savers. So, if we go back to the previous Budget, Rachel Reeves announced that from April 2027, tax rates on savings income would go up by two percentage points. So, it would create this new system for savings rates.

In yesterday’s budget, John Healey went further and said that they will rise by an extra two percentage points across all tax rates. So, what does this mean?

It means on any savings that you hold outside tax wrappers and that exceed your personal savings allowance - I’ll go into a bit more detail about that in a second - at the basic rate, you will pay 24% tax on your savings. At the higher rate, you’ll pay 44%, and at the additional rate, you’ll pay 49% on your savings. So, essentially, you could be losing half of your savings.

Dave Baxter: It’s very steep, yeah.

Craig Rickman: So, heavy stuff. Most people get a savings allowance. I say most, not everyone. So, for most basic-rate taxpayers, that’s £1,000. So, the first £1,000 of interest you earn is tax free. If your income is particularly low, you could potentially earn up to £6,000 in savings interest, but that would be available for someone whose taxable income is below the £12,570 tax-free personal allowance.

But most basic-rate taxpayers get £1,000. Higher-rate taxpayers get £500, but if you’re an additional rate taxpayer, you don’t get a savings allowance. So, yeah, anything outside ISAs or other tax-wrapped accounts, you’ll pay 49% interest on.

So, that was a big blow for savers, and it’s almost like, when you look at the reversal to the cash ISA, it’s a bit like giving with one hand but taking with the other.

Dave Baxter: Yeah, I mean, first of all, I commend you on your command of all these numbers. There’s so much complication. I guess it illustrates how confusing it can be for individuals, how much stuff there is to keep an eye on.

But what strikes me as quite interesting is that it’s making the ISA even more attractive. It’s getting more hostile outside of tax wrappers and it’s really reiterating that point of, if you can, shovel as much in there as possible.

Craig Rickman: Absolutely. And to a point that you made just before we came on, the changes from April to pensions and inheritance tax. Again, the value of the ISA, especially now the rules aren’t going to change from next year, and the current system’s going to remain, it’s becoming such a valuable asset in people’s portfolios.

Dave Baxter: Yeah. It, again, kind of changes maybe how people weigh things up when they’re considering pensions versus ISAs, and so on. It used to be that idea of running down your ISA and then leaving your pension, and now it’s a bit more nuanced, I guess.

Craig Rickman: Yeah, absolutely. So, it requires a bit of thought. In a lot of cases, a pension, if you’re purely looking at it from a tax perspective, will likely be the best thing to do. It can be quite difficult when it comes to pensions and inheritance tax because the future tax bills, the potential tax bills, are unknown. So, it’s a difficult thing to work out, but it is an extra consideration now for people.

I think what we’ll probably see is more people when they’re looking to save for retirement, turning to the ISA with at least some of the money that they have available.

Dave Baxter: And I guess it is also good to remember to take a balanced approach if you can because this Budget and recent Budgets have illustrated that, of course, you can plan with a long-term strategy but the goalposts can shift around.

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Craig Rickman: Yeah, that’s a big bit. That’s been so starkly illustrated by not this budget, but a lot of the previous ones. Things are changing so quickly. We’ve seen the U-turn with cash ISAs, but there have been other U-turns during this parliament as well. So, yeah, things can change. To that point, it’s very, very difficult for savers and investors to keep on top of what’s going on.

Dave Baxter: Well, you’re doing a good job.

Craig Rickman: I’m doing my best.

Dave Baxter: So, let’s move on to the third takeaway, which, again for me, really highlights the importance of things like ISAs now. That’s some interesting detail we’ve had with this pension tax allowance.

Craig Rickman: Indeed, yes. So, as a sort of headline before I go into more of the detail, some low-income pensioners will get an extra tax-free allowance from next year. Let’s talk about why this is happening.

The main reason is that from April next year, the full state pension will exceed the tax-free personal allowance. So, if that is your only source of income, you would end up paying tax on it for the first time.

The government has been wary of this for some time, particularly as tax thresholds have been frozen since 2021/2022. We’ve had five years of frozen thresholds. Combine that with the generosity of the state pension increases under the triple lock, and we’re now reaching a point in the new tax year where it’s going to exceed it.

Rachel Reeves at the Budget last year made this promise to protect pensioners. I think the exact phrase was ‘If you’re on the full state pension or the basic state pension with no increments, you won’t have to pay any tax on it’.

John Healey’s come in, he’s said he’s going to honour that pledge, and that has taken us to where we are today with this pension tax allowance, which is incredibly complicated.

It was only briefly mentioned during the speech, and it was very limited detail. There’s limited detail in the red pages as well, but there’s an explainer online which I then tackled last night and found out the details.

Not only is it pretty complicated, but it looks like it could potentially have created a new tax trap as well to add to the others in the system.

Dave Baxter: Yes. A little while before recording, I was quite amused to hear you muttering ‘tax trap’ under your breath.

Craig Rickman: Yeah. It happens quite a lot.

Dave Baxter: What is this latest trap?

Craig Rickman: Right. OK, so I’m going to have to read some notes.

Dave Baxter: Yeah. Let’s bring out the notes. It’s quite complicated.

Craig Rickman: So, let’s talk about how this new allowance is going to work. So, like I said earlier, Rachel Reeves said it would only apply to those who receive the basic or full state pension. But the policy that we received, that’s not what’s happening. It’s your total taxable income.

So, this is how it’s going to work. If your total taxable income is between £12,570, which is the personal allowance, and £13,036, both in pounds of course, which is the new full state pension from April, you will get this full pension tax allowance, and that’s worth £94 a year.

So, effectively you won’t pay any tax if your income is up to £13,036, so you have full state pension. I’m repeating myself a bit but bear with me.

However, there is a taper if your income increases above that. So, if your total income is above £13,037 but below £13,319, you’ll get some pension tax allowance but it will sort of gradually be withdrawn, so every £3 that you earn above the bottom end of that, your pension tax allowance will reduce by £1.

So yeah, what it means is that if your income is above £13,319, there’s no pension tax allowance. Did you follow that?

Dave Baxter: That’s crystal clear.

Craig Rickman: Yes, probably a bit muddly. But as some analysts who are far brighter than me have managed to work out fairly quickly, or have apparently worked out, the combination of those two factors, the basic rate tax and the withdrawal of this pension allowance on that pocket of income, can apparently create a 53% tax trap on that income.

We wanted to get to a point where we have fewer tax traps or, ideally, no tax traps in the tax system, but now we’ve got this situation.

You could say it’s only a small pocket of income, but that could be pretty painful for the people on lower incomes, and not to mention it’s pretty complicated to get your head around, and it’s coming in in only a few months’ time.

Dave Baxter: Yeah, so in practice then, this is good news for someone who is reliant on the state pension or has an income below that full state pension. But earlier I was talking about the environment being hostile for your savings, investments and so on outside of tax wrappers. To me, this further just puts that point home, I think.

Craig Rickman: Yeah, absolutely. To your point, you can see why the government is doing it. They want to save lower-income pensions, not just from tax but the potential admin. They’re probably saving themselves a bit of a job as well. But you can see why they’re doing it.

But this is the consequence when you keep tax thresholds frozen, there are going to be implications to that. And then to try and correct those implications, you can just create more mess.

In an ideal world, the personal allowance would have increased at the Budget. That was something that was spoken about in the early rumours, but that was always a bit of a long shot, I think. But you end up in a situation where, like you say, it will benefit some people, but it’s kind of messy.

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Dave Baxter: It’s just bizarre though because you could, as you were saying to me earlier, have a £1 million ISA that’s generating a load of income for you, but that won’t actually have a bearing on this?

Craig Rickman: No, because from what we understand, it’s taxable income from whatever source, so it could be earnings, it could be state pension, private pensions, property rentals, whatever it is, but it also says that any tax-free exemptions you’ll still be able to use those. And so, it does beg some questions. Maybe we’ll get some more clarity on this, or I’ll have a better look at it, but that’s the understanding at the moment.

Dave Baxter: Yeah, we’ll wait for more details. So, let’s very briefly cover off just one last bit. I have the words ‘bullets dodged’ written on my notes here. I’m referring to a handful of things that were potentially bad news for investors, and which have not come through in the latest Budget. So, what have we avoided this time around?

Craig Rickman: So, if we look at the pre-Budget rumours, there was speculation about capital gains tax rates going up, the headline rates. That didn’t happen. Actually, Healey ruled that out a couple of weeks ago, so not a huge surprise, but still a relief.

There were no changes, for once, to the pension tax framework. Rumours here were light this time around, we didn’t get these wild rumours about tax-free cash being cut, there was [only] a few. But that’s good news because in the previous few Budgets, we’ve seen some really big upheaval to the pension tax framework, notably the IHT policy, which is coming in from April.

But no change to pension tax, which is something that I think a lot of investors will be relieved about.

And there were no changes to the inheritance tax framework, which could be seen as either a pro or a con. One way of looking at it was to say that there could be positive reform in terms of inheritance tax. There’s an argument to increase the tax-free threshold, which has been frozen since 2009. But no change there and I think it’s probably more of a relief because the thinking was that if we were going to get change there, then it was probably going to be more punishing than beneficial.

Dave Baxter: Yeah. So, kind of business as usual, but largely in a good sense.

Craig Rickman: Yeah, and the final thing relates to what we were just talking about with relation to the pension tax allowance, which is the frozen tax thresholds that have been kept at the same level since 2021-22 and will remain at those levels until April 2031, so 10 years.

And we’ve seen the consequences with the state pension, but there have been other consequences as well, just people’s incomes naturally rising over time and landing into higher tax brackets, landing into tax traps, and more of this is going to happen over the course of this parliament. So, it’s a shame that nothing happened there, but again that was always a long shot.

Dave Baxter: Yeah. So, I guess the lesson there is to, again, use your tax wrappers, and try and protect yourself from that hostile environment.

Craig Rickman: Absolutely. Again, to the point around ISAs, when tax thresholds are frozen, then the tax-free levers that you can pull become more valuable.

So, using ISAs, using pensions where possible that can reduce your taxable income below tax traps, or into lower tax brackets. They’re the kind of things that can be really useful stuff for investors looking to swerve these extra taxes or tax traps.

Dave Baxter: Yeah. Well, I think that’s it unless there’s anything else you want to highlight? We’ve covered quite a lot.

Craig Rickman: No, that all sounds good to me. Yeah, we have got through a lot.

Dave Baxter: Well, thank you for your analysis.

Craig Rickman: Thanks for having me, Dave.

Dave Baxter: And thank you for watching. I hope you enjoyed it. I hope you found it useful. As always, let us know what you think in the comments.

You can, of course, reach out to us directly. Email us please at: otm@ii.co.uk. Let us know future themes we can cover and generally what you think. Thanks and take care.