February 2026 Client Newsletter
- Newbold Wealth Management Ltd
- 12 minutes ago
- 14 min read
A late Budget and an early Spring Forecast
The tax calendar was upended somewhat last year. The Autumn Budget was presented almost as late as possible in November with a run-in period that stretched from mid-summer onwards. By the time it arrived, the Budget felt more like an opportunity for rumour-checking than a formal announcement of tax policy.
Now we are heading for a Spring Forecast that will see the Chancellor arrive at the despatch box on 3 March, earlier than the usual. For 2025, the Chancellor also began by promising a Spring Forecast, only for it to become a Spring Statement when the numbers from the Office for Budget Responsibility (OBR) threatened to disappoint. In 2026, the same transformation should not occur as the Chancellor has said she does not want the OBR to produce a full set of data and is legislating to make this happen. Her oft-stated goal is to have a single ‘fiscal event’ (aka Budget) each year.
In Spring 2026, government finances are less likely to be blown off course than last year, as Rachel Reeves more than doubled her ‘fiscal headroom’ in her November Budget via another £26.6bn of tax increases by 2030/31. That ought to mean that the Chancellor’s March 2026 set piece will not cause any disruption to year end tax planning because it will make no tax changes.
In our first newsletter of 2026 we examine the planning opportunities ahead of 5 April as well as looking to the new tax year and how planning for 2026/27 and beyond has been affected by that late Autumn Budget.
Income Tax
Personal Allowance
The personal allowance, currently a maximum of £12,570, has been unchanged since April 2021 and will, post-Budget, not increase until at least April 2031. However, it remains a starting point for year end income tax planning:
Use it. Your first aim should be to make as much use of your personal allowance. If you anticipate that your 2025/26 income will not be enough to cover your personal allowance, you might be able to bring forward income from 2026/27. For couples, you could consider transferring income-producing investments between yourselves to cover both your allowances. However, if you are not married or in a civil partnership, such transfers may have capital gains tax or inheritance tax consequences.
Protect it. Broadly speaking, if your income in 2025/26 is more than £100,000 then your personal allowance is cut back by £1 for each £2 of income over that threshold. As a result, at an income level of £125,140 or over, your personal allowance is tapered down to nil. In this instance your aim should be to reduce taxable income by, for example, making a pension contribution or a charitable gift. In either case, if you are reducing income in that £100,000 - £125,140 band, you could be receiving effective tax relief of up to 60% (67.5% in Scotland).
Marriage Allowance
If you are married or in a civil partnership and you or your partner is a non-taxpayer and the other pays tax at basic (20%) rate tax (no more than intermediate rate (21%) in Scotland), then you could save tax by claiming the marriage allowance. The non-taxpayer can transfer a flat £1,260 of their personal allowance to the taxpayer, potentially saving up to £252 (£265 in Scotland). However, if you both have income close to the personal allowance of £12,570, you could end up worse off.
Claims can be backdated four tax years (to 2021/22), meaning the total tax saving could be almost five times as much. A claim for 2021/22 must be made by 5 April 2026. Remember, even if you do not qualify for the marriage allowance in 2025/26, you might have done so in earlier years.
Thresholds
Once upon a distant time, tax thresholds increased each year in line with inflation. These days most thresholds do not move, which has the effect of increasing their relevance as rising incomes means more people find themselves crossing thresholds and paying more tax as a result.
Higher rate threshold. In 2025/26 (and 2026/27) if your taxable income (total income less allowances and reliefs) is more than £37,700 (£31,092 in Scotland), you are subject to higher rate tax. That means a rate of 40% outside Scotland and 42% in Scotland, but only for income that is neither savings nor dividends (both attract UK-wide rates). For dividends, falling within the higher rate band, the tax rate is 33.75% in 2025/26, rising to 35.75% in 2026/27.
Advanced rate threshold. This applies only in Scotland at taxable income above £62,430 and means a 45% tax rate applies to non-savings, non-dividend income.
Additional rate. 45% (48% top rate in Scotland and 39.35% on dividends throughout the UK) starts to apply at £125,140 of taxable income.
High income child benefit charge. If you or your partner (married, civil partner or otherwise) receive child benefit payments, then, if either of you have adjusted net income over £60,000, the partner with the highest income will be subject to the high income child benefit charge (HICBC). The maximum charge is equal to the full child benefit once income exceeds £80,000, with a pro-rata charge equal to 1% of child benefit for each £200 of adjusted income above £60,000. If you have two children eligible for child benefit, the HICBC is equivalent to an extra 11.26% being added to your tax rate in the £60,000 to £80,000 band.
£100,000. The £100,000 adjusted net income threshold is a double trigger point:
As mentioned above, it is the point at which the personal allowance starts to be tapered away, creating an effective marginal income tax rate of up to 60% (67.5% in Scotland) in the band from £100,0000 to £125,140.
For tax-free childcare, £100,000 is a break point. There is no tapering, just a brutal red line: cross £100,000 and all entitlement disappears. The same threshold also applies to funded term time childcare, with the rules varying in the different nations of the UK. For example, in England, £100,000 of income is the trigger for losing all funded childcare for children from nine months to three years and half of funded childcare for children aged three and four.
Crossing any of these thresholds creates an opportunity to increase the benefit from making pension contributions or charitable gifts, as the example below shows.
Personal Allowance: Crossing The Threshold
Jeff lives in Scotland and has adjusted net income of £105,000. If he makes a pension contribution of £5,000 gross, this will reduce his adjusted net income to £100,000 meaning:
· He receives 45% (advanced rate) tax relief on the pension contribution - £2,250
and
· Saves £1,125 because he recoups the £2,500 that had been tapered from of his personal allowance, having reduced his adjusted net income to £100,000.
In effect, Jeff gains 67.5% tax relief on his pension contribution.
Pensions
Making a pension contribution is one of the simplest ways to turn high marginal rates of tax to your advantage, as illustrated in the example of Jeff above. As the tax year end approaches there are other pension factors to consider:
Currently, pension contributions (up to the available annual allowance) benefit from full income tax relief and, if they are made by an employer, relief from employer’s National Insurance contributions (at 15%). In the Autumn 2025 Budget, the Chancellor announced changes from 2029/30 to the tax regime under which an employee is able sacrifice salary (or bonus) in exchange for pension contributions.
5 April 2026 (Easter Sunday) is the final date for taking advantage any unused pension annual allowance (up to £40,000) dating back to 2022/23. In theory you could contribute up to £220,000 if you have not made (or benefitted from) any pension contributions since 6 April 2022.
Calculating your maximum possible pension contribution can be a complex exercise, especially if you are, or have been, a member of a final salary scheme or made contributions to a variety of pension providers. It is an aspect of year end planning where it really pays to start early.
While pensions have traditionally been about the most tax-efficient way to plan for retirement, changes to the tax rules in recent years mean, in some instances, alternative options should at least be reviewed with your financial adviser.
The government made a significant climbdown on its proposals for capping inheritance tax (IHT) relief for farms and businesses just before Christmas, but it made no changes to its plans for bringing pension death benefits into the scope of IHT. This is still scheduled to begin from 6 April 2027, with the necessary legislation in the Finance Bill now going through parliament.
If you have thought of your pension as a major part of your children’s (or grandchildren’s) inheritance, you may need to review your plans. If you die on or after your 75th birthday it is quite possible that around two thirds or more of any remaining pension fund will be lost to income tax and IHT. You could find it is wiser to draw on your pension now and give away the net income.
Carry Forward
Over the last three tax years, Steven had steadily increased his annual pension contributions from £18,000 to £28,000, although his earnings were enough to mean that theoretically he could have contributed up to the full annual allowance in each year. In 2025/26, he will shortly receive a £110,000 bonus. His carry forward calculation is:
Tax year | Annual allowance £ | Contributions paid £ | Amount carried forward £ |
2022/23 | 40,000 | 18,000 | 22,000 |
2023/24 | 60,000 | 23,000 | 37,000 |
2024/25 | 60,000 | 28,000 | 32,000 |
TOTAL |
|
| 91,000 |
Before he can access any carry forward, he must use his £60,000 allowance for 2025/26, meaning his total contribution could be as high as £152,000. Following a discussion with his adviser, he decides to contribute £100,000 which means that after exhausting his 2025/26 allowance:
He will mop up the unused allowance from 2022/23 before it is lost, along with £18,000 unused from the following tax year; and
By limiting the contribution to £100,000 he will receive either higher or additional rate tax relief and regain his personal allowance.
ISAs
The Autumn 2025 Budget announced changes to ISAs which will take effect from 2027/28. Full details will follow consultation, but the broad outline is:
For under-65s, the maximum subscription to cash ISAs will fall to £12,000.
There will be new restrictions on the investments under-65s can hold in stocks and shares ISAs, aimed at preventing quasi-cash investments such as money funds.
If interest is earned within a stocks and shares ISA, it will be subject to an unspecified charge for the under-65s (probably 22% to match the new basic savings rate).
The maximum total ISA subscription will remain at £20,000 (the level first set in 2017/18) up to and including 2030/31.
In addition, the Chancellor said that the Lifetime ISA would be withdrawn and replaced by a new help to buy ISA. However, existing Lifetime ISA investors will be able to continue contributions.
The same Budget effectively increased the value of ISAs for investors by:
From 2026/27, increasing the rate of tax on dividends by two percentage points for basic rate taxpayers (to 10.75%) and higher rate taxpayers (to 35.75%). Additional rate taxpayers keep their 39.35% tax rate.
From 2027/28, increasing the rates of tax on interest and other savings income by two percentage points for all taxpayers.
The Budget’s pincer move on savers and investors increases the importance of maximising your ISA contributions before the tax year ends: the more that you subscribe, the more that is sheltered from rising tax rates. If you are aged between 18 and 39, there could also be a case for opening a Lifetime ISA with a minimum subscription (which could be as low as a £1). This would effectively buy you the option of contributing to the plan at any time before you reach age 50, which might prove advantageous because of measures in a future Budget.
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs)
For many years VCTs and EISs have offered more adventurous investors the opportunity to fund young, small, companies that require capital to grow. The nature of those companies means that VCTs and EISs are high risk investments and should normally only form a small part of your overall portfolio.
For 2025/26, VCTs and EISs offer:
Income tax relief at 30% on fresh investment, regardless of your personal tax rate.
Freedom from capital gains tax on any profits.
For VCTs only, tax-free dividends.
For EISs only, the opportunity to defer capital gains tax and offset net losses against income.
From 2026/27, the income tax relief for VCT investment will be cut to 20% while EIS relief will remain at 30%. The change comes alongside other measures that, from April 2026, will double the maximum size of companies in which VCTs and EISs can invest.
The run up to the end of the tax year is prime time for VCTs and EISs to raise fresh monies. With a one third reduction in VCT relief from 6 April and the forthcoming scope to invest in larger companies, current demand for VCTs is high. If you wish to invest in VCTs, do not delay as the most popular offerings will probably become over-subscribed well before 5 April.
National Insurance Contributions (NICs)
After the £25.7bn increase to employer NICs introduced by the Autumn 2024 Budget, the Autumn 2025 Budget left the main NICs rates and bands unaltered for the coming year. However, the Chancellor did announce a change from 2029/30 to the NIC treatment of pension salary/bonus sacrifice arrangements. From 6 April 2029, only the first £2,000 of salary sacrificed in any year will be exempt from employer and employee NICs (a total maximum of 23% of sacrificed salary currently). The move by the Chancellor underlines how favourable today’s treatment of pension salary sacrifice is, especially in 2025/26 after the Autumn 2024 Budget increase in employer’s NICs.
If you are an employee expecting to receive a bonus before the end of the tax year (or in 2026/27), you should consider taking advantage of the current pensions salary sacrifice rules for some or all your bonus. Sacrifice can be especially attractive if your bonus takes you across one of the income tax thresholds mentioned above.
Bonus or pension sacrifice?
John has been told he will receive a bonus of £10,000 in March 2026. His existing adjusted net income for 2025/26 is £58,000, meaning that he could fall within the scope of the HICBC. If he is paid the bonus as cash, he will effectively have to pay 40% of the child benefit for his three children as HICBC.
An alternative would be to sacrifice £8,000 of his bonus for a pension contribution, keeping him just at the HICBC threshold:
| Bonus £ | Sacrifice £ |
Total employer outlay | 9,200 |
|
Employer pension contribution+ | N/A | 9,200 |
Employer NIC @ 15% | (1,200) |
|
Employee pre-tax bonus | 8,000 |
|
Less: Income tax @ 40% | (3,200) |
|
HICBC | (1,259) |
|
Employee NICs @ 2% | (160) |
|
Employee net bonus | 3,381 |
|
Pension contribution for employee |
| 9,200 |
+ Assumes employer will add their full £1,200 NIC saving to the £8,000 of bonus sacrificed as an additional pension contribution.
In this instance, John gains a £9,200 pension contribution at a cost of losing £3,381 of net bonus – an effective tax relief rate of 63.25%.
Capital Gains Tax (CGT)
Annual Exemption
The CGT annual exemption is now only £3,000 and above this level tax rates on gains are 18% if you are a non- or basic rate taxpayer and 24% otherwise. While the exemption is less than a quarter of what it was just three years ago, it cannot be carried forward, so, if you do not use it, you lose it and the tax saving it offers. To use it means realising gains by 2 April (Good Friday is 3 April). Global share markets generally had a good 2025 – even the UK’s FTSE 100 rose over 20% – so you should have some investments that can be sold to produce £3,000 of tax-free gains.
If you are married or in a civil partnership, you each have a £3,000 exemption. If your partner does not have sufficient gains to use their exemption, you can transfer investments to them which can then be realised with the gains set against their exemption.
Losses
When you realise a gain and a loss within the same tax year, the loss is offset against the gain before the annual exemption is applied. Thus, to use your exemption to the full, you must realise gains of £3,000 plus the amount of your in-year losses. If there are no in-year gains, realised losses can be carried forward to future years. Such carried forward losses are then only offset against realised gains after the annual exemption is exhausted.
Just as transfers can be used to pass across gains between spouses and civil partners, so too can losses be transferred to reduce tax, as the example below shows.
Transfer of Losses
Robert has no annual exemption as it was exhausted by an October takeover of his employer, a company in which he held shares. He also owns shares in a former employer that has attracted no buying interest: that holding is currently standing at a £4,000 loss. His wife, Sylvia, is now looking to realise one of her successful investments.
To do so will mean realising gains of £6,000. If Brian transfers three quarters of his former employer’s shares to Sylvia, she can sell that alongside her investment, producing a net gain of £3,000 (£6,000 - £4,000 x 0.75) which is covered by her annual exemption.
Some words of warning though. Any such transfer must be outright and unconditional. Also, in transactions which involve the transfer of an asset showing a loss to a spouse or civil partner who owns other assets showing a gain, care should be taken not to fall foul of anti-avoidance rules that apply (money or assets must not return to the original owner of the asset showing the loss).
Timing
If you incur a CGT liability in 2025/26 – other than in respect of certain residential property – your CGT will be payable on 31 January 2027. Wait until after 5 April to realise the gain and the tax bill falls due on 31 January 2028 and you can use your 2026/27 annual exemption.
Inheritance Tax (IHT)
The Autumn 2025 Budget extended the freeze on the nil rate band (£325,000) and the residence nil rate band (maximum £175,000) by yet another year to 5 April 2031. Subsequently, on two days before Christmas, the Government watered down Autumn 2024 Budget measures to limit 100% IHT agricultural and business relief, increasing the combined allowance to £2.5 million. However, there was no such retreat from the 2024 proposals to make most pension death benefits subject to IHT from 6 April 2027. These changes to the IHT framework mean your estate planning strategy should at least be reviewed and may need to be revised. Lifetime gifts now have an even more important role to play in mitigating the impact of IHT.
Some of those lifetime gifts are covered by exemptions that form a traditional part of year end planning:
The annual exemption. Each tax year you can give away £3,000 free of IHT. If you did not use all the exemption in 2024/25, you can carry forward the unused element to this tax year (and no further), but it can only be used after you have used the current tax year’s exemption. For example, if you made no gifts in 2024/25, and you gift £5,000 in 2025/26, you will be treated as having used your full 2025/26 exemption and £2,000 from the previous tax year.
The small gifts exemption. You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 exemption.
The normal expenditure exemption. The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions, but widely ignored. Unlike the other two exemptions, it is not a multi-decade frozen cash number. Any gift, regardless of size, escapes IHT under the exemption provided that:
it is made regularly;
the source of the gift is your income (including ISA income but excluding investment bond and other capital withdrawals); and
the sum gifted does not reduce your standard of living.
With remaining pension pots falling into IHT from 6 April 2027, in some circumstances it can make sense to draw excess pension income and gift it away using the normal expenditure rule.
Do not delay your tax year end planning. As the end of the tax year coincides with Easter, an early start is more necessary than usual.
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, the Finance (No 2) Bill 2025 and HM Revenue & Customs practice as at 9 February 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.
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