August 2026 Client Newsletter

Meet The New Boss…Same As The Old Boss?

On 20 July, the seventh Prime Minister since the Brexit vote took up his post. One day later, the ninth Chancellor over the same timeframe assumed office. Andy Burnham and John Healey can now look forward to their first Autumn Budget. Both will be all too aware that their predecessor’s decisions to raise over £65bn of additional revenue across two Budgets were not popular with business, on which they are dependent for economic growth.

The OBR Background

Less than a fortnight before the change of Prime Ministers, the Office for Budget Responsibility (OBR) published its yearly Fiscal Risks and Sustainability Report (FRSR). The report is complementary to the Economic and Fiscal Outlook (EFO) which the OBR publishes twice a year, alongside the Budget and Spring Statements. The FRSR starts where the EFO forecasts end – five years out – and looks out as far as the 2070s. The latest FRSR concluded that, on unchanged policies, “In nearly all of the scenarios we explore, debt eventually moves onto an unsustainable and ever-rising path”. To prevent debt from increasing above the level in 2030/31, the OBR said the UK would need a tax increase and/or spending cut of 3.8% of GDP - roughly equivalent to the 2030/31 total raised from corporation tax receipts or departmental spending on education. The OBR’s gloomy prognosis is primarily driven by an ageing population, adding to pension and healthcare costs.

The Next Budget

At the end of the second week of the Burnham government, the new Chancellor announced that his Budget première would be on 28 October. Although that is almost a month earlier than last year, Mr Healey now faces almost three months of tax-change speculation, similar to that which preceded both of Rachel Reeves’ Budgets. 

In his letter to the Treasury Committee confirming the date, the Chancellor said that “…we will abide by the fiscal rules, ensuring we retain a buffer to protect us against uncertainty and the impact of instability in the Middle East”. That looks a challenge without raising taxes. In late July, the Resolution Foundation estimated that the buffer had contracted from £23.6bn in March 2026 to about £8bn. He will want to rebuild a decent part of that buffer given the difficulties his predecessor had after leaving herself only £9.9bn of leeway in her first Budget. While Resolution’s figure is only one estimate, the fallout from the Iran war and slow economic growth after the first quarter both suggest deteriorating public finances.

Into The Crystal Ball…

The new Prime Minister has promised to stick with the manifesto commitments and fiscal rules of his predecessor. That means no increases in the rates of income tax, National Insurance, VAT and corporation tax – the four largest sources of tax revenue. Andy Burnham has thus given John Healey the same constraints that Rachel Reeves faced. The net result is that, to raise extra revenue, new taxes must be introduced – as last year’s mansion tax – and/or reliefs must be cut back – as happened with inheritance tax (IHT) and farms. Already there is speculation that the mansion tax, due in April 2028, will see the starting point reduced from £2 million to £1.5 million.

Action

Second guessing new taxes is a game for pundits, not a sensible way to plan your finances. However, in the run up to 28 October, it can make sense to bring forward any plans that you have for the rest of 2026/27, such as making lifetime gifts.

What Are Your Chances Of Living To Age 90?

Every other year, the Office for National Statistics (ONS) updates the odds of a child born today living to reach the age of 100. The answer, for the record, is roughly one in eight boys and one in five girls. However, those updates are part of a much larger set of data life expectancy revisions. 

More Than Just The Childish Headlines

The ONS life expectancy projections are a key component in developing estimates of the future UK population, which are widely used in long-term government planning. In a more consumer friendly form, the data underpins the basis for a useful calculator on the ONS website. Simply enter your age and sex and the output gives you:

·        The average life expectancy for someone of your age;

·        The chances of that same person living to 90 and 100; and

·        A graph showing you the odds of reaching any age (up to 125!).

The results may surprise you. For example, the ONS reckons a man age 68 – the State Pension Age from April 2028 – has an average life expectancy of 85 years and a one in three chance of reaching age 90. A woman of the same age will, on average, live three years longer and has a close to evens chance of reaching four score and ten.

Beware The Average

The ONS life expectancy numbers are averages, based on the UK population. As such, they deserve the cautions that all average numbers merit. Any average will generally mean that there is a roughly even split between those who fall below it and those who exceed it. ONS research reveals substantial differences based on where a person lives, which is often a proxy for their wealth. A dramatic example from the recent ONS data is a ten-year difference for male life expectancy between Blackpool in the north west of England and Hart, in the south east. 

All other things being equal, the chances are that, if you are reading this, your relative wealth will mean your life expectancy and chances of reaching 90 are both higher than the ONS calculator suggests.

Two Consequences…

Longer retirement. The greater your life expectancy, the more time you will spend in retirement and the longer your pension fund will need to last. If you retire at 68 expecting to live to 85, but make it to 90, that is another five years of retirement to finance and you will need a correspondingly larger pension pot than originally envisaged from which to draw.

A lifetime annuity has traditionally been the solution to providing a retirement income for the length of your (and your spouse’s/partner’s) life, however long that may be. Next April’s move to bring pension death benefits within the scope of IHT has turned what used to be a drawback of annuities into something approaching an advantage; annuities will usually have low or no value on death.

The insurance companies providing annuities will take account of the ONS and other life expectancy data, so the annuity rate will reflect the possibility that the insurer will be paying some of its policyholders well into their 90s.

Annuity rates depend upon a range of factors beyond just your age, such as health and lifestyle (including smoking and drinking), yields on long term fixed interest bonds and your post code. Rates change regularly as bond yields move and insurers jostle for market share.

Whether an annuity is appropriate for you on retirement, or at some point after retirement, will depend upon your and your family’s circumstances. Buying an annuity is generally an irreversible decision, making advice vital.

Lifetime gifts. The current IHT rules have a generous treatment for outright gifts made during lifetime. There is no immediate IHT charge, regardless of the gift’s size and no IHT if the maker of the gift survives for seven years after their act of generosity. The ONS projections suggest an 82-year-old man and an 85-year-old woman both have an evens chance of living for another seven years. 

If death happens within the seven-year timeframe, the gift is added back into the estate, but, even then, should it attract IHT, there is an effective 20% a year reduction in the tax, starting after year three. Lifetime gifts that are not outright, such as those involving trusts, can attract an immediate tax charge, as well as future IHT charges.

Is Additional Rate The New Basic Rate?

While the media was busy speculating about who would be Andy Burnham’s choice for Chancellor, HMRC released its annual update of income tax statistics. They were a useful snapshot of the government’s largest source of tax revenue by far.

More Taxpayers, More Tax

Much has been made of the constraints imposed on the government by its manifesto pledges not to raise the rates of income tax, VAT and National Insurance and not to increase tax on undefined “working people”. However, rates are only part of the tax jigsaw, as the HMRC data shows:

• The income tax paying population in 2026/27 is estimated to be 40.8 million, a rise of 2.2 million over the past two years and 9.6 million (31%) from 2016/17.

• The number of higher rate taxpayers in 2026/27 is projected to be 7.7 million – close to one in five of all taxpayers. In 2016/17 the higher rate tax paying population was 4.1 million.

• The biggest proportionate jump has been in the population paying the additional/top rate of income tax, mainly due to the previous government’s decision to lower the threshold by nearly £25,000 from 2023/24. The 2026/27 band of top rate taxpayer numbers is an estimated 1.3 million, up from 356,000 in 2016/17.

Source: HMRC

Not So Basic…

The freezing of the personal allowance and income tax bands has been criticised as a tax policy made by default rather than by design. It is inflation, not the Chancellor, that effectively sets the amount of income tax raised each year. The consequences can be strange:

• From next April the new state pension will increase by at least 2.5%, thanks to the infamous triple lock (which Andy Burnham has vowed to keep – for now). A. 2.5% increase will take the pension up to £12,862 a year, £292 above the frozen personal allowance. In the Autumn Budget 2025 Rachel Reeves said that, by 2027/28, she would introduce a legislative change which would mean those who only received the new state pension would not pay income tax.

  
  

  At the time many experts said such a restructuring would be difficult to administer and unfair, because two pensioners with the same pension income could pay different amounts of tax, depending upon how much of their pension was paid by the state. So far, it remains unclear how the promise will be put into practice – by the new Chancellor.

  
  

• Basic rate taxpayers are far from being the main source of income tax, even though they represent just over three quarters of all taxpayers. For 2026/27, basic rate taxpayers account for little more than a quarter of all income tax receipts, as the pie chart below demonstrates. The continued freeze of tax thresholds and the personal allowance will keep dialing back the basic rate taxpayer’s share as inflation drags more income into the higher and additional rate bands. The corollary is that the Treasury becomes ever more dependent on higher earners – already almost £4 in every £10 comes from additional rate taxpayers.

Source: HMRC

• The Resolution Foundation recently calculated that, even if the government reinstated a CPI inflation link to income tax thresholds and allowances from 2031, by 2059, someone on the National Living Wage (two thirds of median earnings) would be a higher rate taxpayer.

  
  

Relief In Sight?

Before entering No 10, Andy Burnham had remarked that the frozen personal allowance was a growing issue he encountered when canvassing in his Makerfield constituency. However, after entering Downing Street, his attitude appears to have changed. That could be because the Treasury had shown him the price tag of any reform: each £100 increase in the personal allowance costs about £1 billion in lost tax revenue.

To unfreeze the personal allowance from the £12,570 set in April 2021 and bring it up to a 2026 inflation-adjusted figure would require an increase of nearly £3,500.

The huge potential cost is a mirror image of how much tax has been stealthily generated – and will continue to be generated – by the allowance freeze. The revenue benefit of the freeze until 2031 is baked into the OBR’s forecasts. Just removing the freeze from 2027, yet alone fully indexing from 2021, would create a serious hole in government finances.

Action

Talk to us about how you can manage your income to minimise the impact of the no-change tax policy. The sooner you review your options, the better, because the coming Budget is unlikely to offer any easing of the pressure.  

Another Child Trust Fund Chase

The last child eligible for a Child Trust Fund (CTF) was born on 2 January 2011. Over 15 years later, the government is still struggling to connect CTFs with their owners.

Set Up A Taskforce!

In late June, less than two months into the role of Economic Secretary to the Treasury, Rachel Blake announced that a new CTF taskforce had met for the first time. Alongside the government, the taskforce members included Nationwide, HSBC UK, Sheffield Mutual and One Family. Together, they discussed “[taking] action to reunite young people with unclaimed Child Trust Funds”. Less than a month later, Rachel Blake was replaced as Economic Secretary by her predecessor in the job, Lucy Rigby. Regardless of changing government personnel, the taskforce faces quite a challenge. There are more than 750,000 CTF owners now aged over 18 who have not claimed their funds, according to HMRC. On average each CTF has a value of £2,200, but HMRC’s data for April 2025 also shows that there were 7,000 unclaimed plans with a value of at least £25,000.

Send Out A Letter!

The taskforce met after HMRC had started to write to all 21-year-olds with unclaimed CTFs “to make them aware they have a CTF”. Why 18-20-year-olds were not included in the planned mailing was not made clear.

Action

If your child/grandchild/niece/nephew/etc. was born between 1 September 2002 and 2 January 2011 they will normally have been eligible for a CTF. However, about a quarter of all CTFs were opened on a default basis by HMRC, making it all too easy for everyone involved to be unaware of the plan.

For lost CTFs, start with the HMRC CTF tracing service at https://www.gov.uk/child-trust-funds/find-a-child-trust-fund. But seek advice before taking any action with the CTF to preserve the tax benefits. 

ISA News

In the Autumn 2025 Budget, the former Chancellor trailed some significant changes to ISAs which have now landed in the lap of her successor.  

The Story So Far

The thrust of the Budget proposals was to limit the annual subscription to cash ISAs to £12,000 from 2027/28 for anyone under 65. It sounds simple enough, but various parts of the ISA industry were unhappy. Building societies and banks warned that less cash flowing into sticky ISA deposits could influence funding of the mortgage market. Investment providers worried about how cash would be defined in stocks and shares ISAs as such plans often hold some cash pending investment, because of income payments pending reinvestment or for strategic reasons. Press reports point to battles between providers and the Treasury.

A secondary aim of Rachel Reeves was to replace the Lifetime ISA (LISA) with a plan designed solely for first time buyers, removing the LISA’s penalties and retirement savings element.

A Consultation, A Newsletter And A Corporate Report …

In June, HMRC published three documents:

• First time buyer (FTB) ISA consultation. This revealed that the LISA replacement would look like the old Help to Buy ISA that was supplanted by the LISA. The FTB ISA would have a tax-free bonus based on the amount of subscriptions paid, not value, after it had been held for at least one year. Frustratingly, the consultation gave no details of the maximum subscription, level of bonus or the maximum eligible property price.

  
  

• The tax-free savings newsletter. The newsletter set out more details about the restrictions on cash within ISAs. These included a flat 22% charge on all interest earned on cash held in non-cash ISAs, regardless of the investor’s age and a ban on under-65s transferring from a non-cash ISA to a cash ISA.

  
  

• Corporate report. This document was entitled ‘ISA reform 2027: anti-circumvention rules factsheet’ and caused a few furrowed brows. It attempted to define what would be considered ‘cash-like assets’ in a non-cash ISA. The suggestion was that, from April 2027, these would be Money Market Funds only. However, at present, the government and Financial Conduct Authority (FCA) are in the process revamping the legislative regime for such funds.

  
  

Action

The ISA changes will not occur until 2027/28, but they could impact on cash investments in non-cash ISAs made now and still held on 6 April 2027.

If you are considering ISA or LISA investment, talk to us about the latest developments and how these could affect you. The new ISA regime is still far from finalised.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding current law and HMRC practice as at 18 August 2026. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.