Pantomime season is upon us and as children gleefully file into audiences excited for chaos and disorder, the adults might be forgiven for feeling that they’ve already had their fair share for this year.
Last year’s budget came with plenty of expectation and scene setting of tax increases, however the government, at least, managed to tie it to a narrative of greater investment in public services and the UK’s future in general. This time around, they seem to have lost all control of the script and this time the narrative is one of burdens to be borne, U-turns and in-fighting.
Next Wednesday the Chancellor will stand up in the house of commons with the unenviable task of delivering her Budget; trying desperately to balance the books, whilst not further alienating a very disillusioned electorate and an increasingly mutinous Labour party.
We will try to unpick what to expect from a savings and investment point of view, a job made harder by the fact that the inhabitants of number 11 Downing Street seem to still be debating it.
Income tax will stay untouched – well not really
It seems that, for now, income tax rates will remain unchanged – following some two-ing and fro-ing about breaking election promises. Having said that, it’s pretty nailed on that income tax brackets will likely be frozen for even longer.
The so-called ‘stealth tax’ first introduced under the previous administration can act as a huge tax increase for an increasing number of people. Estimates suggest that the current freeze will bring roughly 8.3 million working people into higher tax brackets, with a further extension potentially moving that number over 10 million. Whether the freezing of these thresholds is partly responsible for the UK capitulating productivity I will leave to the macro-economic think tanks…
Thankfully the income tax system works on a marginal basis, so it’s only the income earned above the threshold that will be charged at a higher rate of income tax. However, if you are one of these unfortunate people who will be moved into a higher tax band, this would have a really meaningful impact on any unsheltered savings and investments.
A loose rule of thumb is that any (non-tax protected) products that pay ‘interest’ are generally taxed via income tax. So this is primarily cash savings and bond investments (or funds that are more than 60% in bonds).
Now that interest rates have risen significantly since 2023, the chances of earning more interest than your tax-free allowance are much higher, especially if you’ve moved into the higher-rate band, where the allowance is only £500. This means the jump in tax can be significant: handing over more than 40% of the interest above your allowance instead of 20%, or 20% instead of 0%, makes a real difference. The probability of beating inflation with only 60% of your interest is then very difficult.
As always, the answer, for most people, is tax wrappers. Most people make good use of their Individual Savings Account (ISA) allowance each year – though not everyone does – but it’s worth checking that every member of the family is making the most of theirs. That includes children, who benefit from a generous £9,000 Junior ISA allowance. It’s a useful way to give them a financial head start, while allowing parents (and even grandparents) to shelter a little more of their savings.
On top of this, pension contributions can be a good way to help. Pension wrappers also shelter their investments from capital gains tax and ongoing income tax (except at withdrawal). On top of this, you receive ‘tax relief’ on any contributions based on your marginal rate of income tax. So, for example, as a basic rate tax payer, you can immediately boost any contributions by 25% – £100 contribution becomes £125 invested – as a way of claiming back income tax.
For a higher tax rate payer, using an illustrative example, the equivalent tax rate can go up to 66% once you use the full pension allowance of £60,000. Once again this comes through the initial tax boost at source, as well as through a self-assessment tax return. It should be noted that the effective rate depends on your earnings, so best speak to a member of our team to talk through the specifics. But the point remains: not only do you shelter the income generated by your investments from a higher rate of income tax, you also make the most of that higher rate by turning it to your advantage.e.
Pensions might (nearly) escape unscathed
This time last year, the rumour mill was swirling heavily around pensions. “Would the 25% tax free allowance be cut?” “Would there be a cap on the amount that can be contributed with tax relief” and so on. This time around they seem to have set out that at least the 25% tax free allowance will be untouched.
There has been little noise made about ability to contribute as well, although this hasn’t been ruled out. This should hopefully be good news for those who still haven’t taken their tax-free allowance. As discussed, taking money out of a tax-free wrapper is probably ill-advised in this current climate if the money is not immediately needed.
However, there are smaller subsections of the populous who will be impacted by some pension changes. It seems clear that there will be some restrictions on the money that can be put into a pension through salary sacrifice. Currently, this is a mechanism often used by the self-employed, or by those whose income sits just above the dreaded £100,000 ‘cliff edge’ – where the reduction of the tax-free allowance and benefits such as childcare can mean that crossing the threshold actually leaves you worse off. This cliff edge looks set to remain in place for longer and to affect more people, as described above.
Putting the added income into a pension as opposed to salary is an effective way to reduce the taxable level of income below these thresholds, without losing the money – and getting the great benefits of a pension. For now, this doesn’t appear to be a cap on how much can be contributed, but rather a cap on the amount that is exempt from National Insurance. This may make employers less willing to allow it, but it probably still makes the process of salary sacrifice a better option than the alternative for most people – just slightly less valuable.
Property tax
Property is not an asset class I particularly specialise in, however one thing that seems obvious is that future negative annual cash flows on the asset will definitely not be good for the price of the asset. There is still some speculation about how this will be implemented – whether it will take the form of a ‘mansion tax’, an adjustment to council tax, or yet another charge on anyone who owns even a modest property in London.
There’s a view that this could make the property market more active, with people choosing to sell long-held homes and downsize to somewhere with lower ongoing costs, making the market more fluid – and perhaps more accessible to first-time buyers. We’ll see.
However, there are some clear implications from a savings perspective. People who have always had their tax handled automatically through PAYE might, for the first time, have to pay an extra annual tax bill themselves – outside the PAYE system. So, building a ‘short-term’ tax pot through cash or other money-market instruments will become part of the savings tool kit.
For those who may choose to downsize, putting the proceeds to the right use will be important. Firstly, making full use of the available tax wrappers will be crucial, but it’s just as important to ensure that your money is working toward the right goals and aligned with your risk level. Letting the money sit in cash for the long run may be detrimental to your long-term goals and outcomes.
There will also likely be a real impact on those who use property as a direct investment vehicle. This may make it a less appealing asset class – if so, there are plenty of other options available.
However, until we know what form this tax will take, it’s difficult to say much more. We’ll be able to share further thoughts next week.
Other possibilities
The list is perhaps endless, but there are a few other things that could occur that we will pay lip service to. The reduction of the Cash ISA allowance, which we have previously commented on, seems to be pretty nailed on.
Capital gains tax, which was already increased in the last budget, could come under fire again, particularly with the ‘higher’ rate being much lower than income tax and thus unfair on ‘working people’ – an easy target for a Labour party. It could also be quite likely that there might be further changes to inheritance tax, which, if this is the case, we will add further comment on once the details are clear.
Our portfolios
Whilst there may be some changes to taxes and it’s important to discuss those, it’s also important to assess the potential impact on your investments with us.
We operate globally diversified portfolios, with relatively low UK exposure, particularly on the equities side. One area that we will be keeping an eye on is UK government bonds (GILTs). If the bond markets deem that the Chancellor has got a credible plan to balance the budget, then we might see a small rally. However, if they deem there to be holes in the Budget or measures don’t go far enough, then you could see a sell-off in GILT markets, which will mostly affect our low risk portfolios. Our exposure in GILTs is also mostly in shorter-dated GILTs, which should be less volatile as well. Often we might see an initial reaction and then a slow readjustment as markets digest the data. An extreme example would be the reaction we saw following the so-called “Kami-Kwasi” budget under the Liz Truss administration. This is something that we will monitor closely.
For our higher-risk portfolios, if the Budget is viewed as ineffective, the pound would likely fall against other currencies – which could be positive for our global equity allocation, as it is not fully hedged. Conversely, if the markets deem Rachel Reeves to have done a good job, particularly looking at the balancing of the books, then you may see the pound strengthen, which may have a negative effect on the global equity allocation. However, an extreme reaction is unlikely, unless we see an extreme Budget.
On the pure equity side, we do have some UK exposure, however this is exclusively in FTSE 100 ETFs, which invests in companies which make roughly 70% of their income overseas. These stocks are much less tied to the UK economy than smaller companies of the FTSE 250, for example. In fact, the FTSE 100 normally benefits from a fall in the pound. As a result, this exposure should be less exposed to any impact on economic growth.
For all of these assets, the markets are already pricing in their own expectations of the budget outcome, so if Ms Reeves doesn’t stray too far from predictions, the reaction could be quite muted.
Long story short, unless there is something really dramatic and unexpected, our portfolios should be fairly resilient to any outcomes. We will closely monitor GILT markets, which would most likely be the area where we would see some impact, particularly for our low-risk portfolios.
As always, we will be on hand to provide our views and guidance on how to navigate the rapidly changing tax and regulatory landscape. We’ll also be hosting a post-Budget webinar (you can find the registration link in the newsletter, or reach out to us and we’ll send it to you). And as always, our friendly and professional team is on hand to answer any questions you may have – so please don’t hesitate to get in touch.
Capital at Risk. Past performance is not a guide to future performance. This article was written on 19/11/2025, 7 days ahead of the UK Budget scheduled for Wednesday 26 November 2025. Please note that the information provided does not constitute tax advice, and individual circumstances may vary. These views are not definitive, and the situation may change as new information emerges. You should seek financial advice if you are unsure about investing.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
