How Did The Budget Affect You & Your Finances?

As the dust settles on the festive period, many of us are tightening our belts and reviewing our finances in the face of tax returns and end-of-year accounts. As always, when doing so, it's important to consider any changes announced in the 2025 Budget and how they may affect you. With this in mind, in this article, we take a look at Inheritance Tax, pensions and tax-efficient investments and key considerations that you need to be aware of.   

Inheritance Tax (IHT) 

Inheritance Tax nil rate bands  

 The nil rate band has been frozen at £325,000 since 2009 and will continue to be frozen until 5 April 2031.   

An additional nil rate band, called the ‘residence nil rate band’, is also frozen until 5 April 2031 at the current £175,000 level.  The residence nil rate band tapers at the rate of £1 for every £2 of wealth over £2 million.   

Agricultural Property and Business Property Relief  

From 6 April 2026, agricultural and business property for IHT purposes will continue to benefit from the 100% relief up to a limit of £1 million. The limit is a combined limit for both agricultural and business property. Such property in excess of the limit will benefit from a 50% relief. 

The £1 million limit applies per person and is refreshed every seven years. From 6 April 2026, this allowance will be transferable between married couples or civil partners. This will include where the first death was before 6 April 2026.  

There may be a further £1 million allowance for trusts in certain situations , but the rules are complex.

The £1 million limits for both individuals and trusts will be frozen until 6 April 2031. 

There has been a great deal of press reflecting the unhappiness of farmers with these changes. However, the changes are much broader and potentially affect the owners of many SMEs in the UK. Early IHT planning becomes critical under the new rules.

Pensions 

Pension tax limits  

For 2026/27: 

• The Annual Allowance (AA) is £60,000. 
• Individuals who have ‘threshold income’ for a tax year of greater than £200,000 have their AA for that tax year restricted. It is reduced by £1 for every £2 of ‘adjusted income’ over £260,000, to a minimum AA of £10,000. 
• The Lump Sum Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum, is £268,275. 
• The Lump Sum and Death Benefit Allowance, which relates to the general maximum that may be able to be taken as a tax-free lump sum in certain circumstances, is £1,073,100. 

Unused pension funds and death benefits 

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027. 

All death-in-service benefits payable from registered pension schemes will be excluded from the value of an individual’s estate for IHT purposes. 

The personal representatives will be responsible for paying any IHT due on unused pension funds and death benefits in a person’s estate. However, pension beneficiaries of registered pension schemes will be able to request the pension scheme administrator pay their IHT liability directly to HMRC in specific circumstances. They may also direct scheme administrators to withhold 50% of taxable benefits for up to 15 months. 

The rules may potentially have significant effects for those with unused pension funds.  They have been made in response to concerns expressed by many, including the professional representative bodies. 

Tax-Efficient Investments  

Individual Savings Accounts (“ISAs”)  
  
For 2026/27, the limits are as follows: 

• Individual Savings Accounts (ISAs) £20,000 
• Junior ISAs £9,000 
• Lifetime ISAs £4,000 (excluding government bonus) 
• Child Trust Funds £9,000. 

These limits will remain frozen until 5 April 2031. 

From 6 April 2027, the annual ISA cash limit will be set at £12,000. The remaining £8,000 will be designated for stocks and shares ISA investment. This restriction will not apply for those over the age of 65, where the cash ISA limit will remain at £20,000. 

Enterprise Investment Scheme and Venture Capital Trusts investment limit increase and restructure

The government has announced significant changes to the limits applying to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) from 6 April 2026. 

The gross assets requirement that a company must not exceed for EIS and VCTs will increase from £15 million to £30 million immediately before the issue of the shares, and from £16 million to £35 million immediately after the issue. The annual investment limit that companies can raise will increase from £5 million to £10 million.  

For Knowledge-Intensive Companies (KICs), the annual investment limit will increase from £10 million to £20 million. The company’s lifetime investment limit will increase to £24 million and for KICs to £40 million. The Income Tax relief that can be claimed by an individual investing in VCTs will decrease from 30% to 20%. 

Expanding the eligibility limits of the Enterprise Management Incentives scheme 

The government is also increasing certain limits relating to the Enterprise Management Incentives (EMI) scheme.  

For EMI contracts granted on or after 6 April 2026, the employee limit will increase from 250 employees to 500 employees, the gross assets test will be increased from £30 million to £120 million, and the company share option limit will be increased from £3 million to £6 million.   

The limit on the exercise period will increase to 15 years, and will also apply retrospectively to existing EMI contracts which have not already expired or been exercised. 

UK Listing Relief 

The government has announced an exemption from the 0.5% Stamp Duty Reserve Tax (SDRT) charge on agreements to transfer securities of a company whose shares are newly listed on a UK-regulated market. This measure will have effect for agreements to transfers made on or after 27 November 2025. 

The exemption will apply for a three-year period from the listing of the company’s shares. The exemption will not apply to the 1.5% SDRT charge, or where the transfer forms part of a merger or takeover, where there is a change of control.  

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.