November 2025 Client Newsletter

The Autumn Budget

Source: ONS

Lots of red ink

This graph compares how government borrowing had progressed in the first six months of 2025/26 with the projected figures produced by the Office for Budget Responsibility (OBR). Halfway through the financial year, actual borrowing was £7.2bn above the OBR figure. With total government debt close to £3,000bn, the overshoot is arguably little more than a rounding error, but that is not how the markets or the Chancellor see it.

After her last Budget, at the end of October 2024, Rachel Reeves repeatedly said that it was a ‘one and done’ set of tax rises. Since then, the Chancellor has been hit by reversals to planned Winter Fuel Allowance and disability benefit cuts, as well as higher than expected inflation. Most economists anticipate that the Budget on 26 November will see further tax rises, with the overall increase up to £30bn a year, compared with the 2024 hike of about £40bn. How she might find that sum has been dampening consumer confidence and keeping a variety of economic think tanks busy providing suggestions.

The Manifesto constraint

The Labour Party manifesto for the 2024 election said:

“Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”

At the time many economists, such as those at the Institute for Fiscal Studies (IFS), said the pledge was an unnecessary and foolish constraint. Their argument was that no government could be certain what economic conditions it would face over a potential five-year term, so tying their hands in such a way on the ‘big three’ taxes that together produce about two thirds of all revenue made no economic sense, whatever its political virtue.

It did not take long for the Chancellor to realise this. In her first Budget Rachel Reeves decided that the manifesto’s promise on National Insurance contributions (NICs) did not relate to employers’ payments. There could be some similarly creative reinterpretation this year. For instance, the IFS has said that the Chancellor could borrow a strategy from her predecessors and invent a new tax, like Rishi Sunak’s short-lived Health and Social Care levy (a de facto NICs increase). In a similar vein, it has been widely predicted that the income tax personal allowance and tax bands, already frozen until 5 April 2028, will see their freeze extended for another two years. While that is not an increase in tax rates – the manifesto pledge – it is an increase in the income tax burden and would undoubtedly hit working people.

So where else..?

According to the IFS, adding 1p to all income tax rates would raise nearly £11bn a year by 2029/30. Finding that sum from tweaking taxes outside the big three is difficult. The next four taxes in terms of revenue are:

• Corporation tax, where the government has already ruled out changes to rates (other than for banks) and reliefs.

• Council tax, which the OBR already assumes will rise by 4.3% a year for the rest of the parliament.

• Business rates, where the manifesto looms again with a statement that Labour intends to “raise the same revenue but in a fairer way”.

• Fuel duties, which have not seen an increase since 2011, but which the OBR continues in its forecasts to assume will rise from next year (as ever…) in line with RPI inflation and see the removal of the ‘temporary’ one-year 5p a litre reduction introduced in 2022.   

The next potential stop for the Chancellor is revisiting some of the areas from the 2024 Budget, such as capital gains tax, inheritance tax and pensions. However, raising £10bn from any of these – or even all three – would require major restructuring/reform which Rachel Reeves has shown little appetite for to date.

What should you do pre-Budget?

Unlike tax year end planning, when you know what will happen on 6 April, pre-Budget planning involves an unknown future. As such ,any action runs the risk of backfiring.

For example:

·       Drawing pension cash. There have been rumours of a reduction in the current tax free cash limit of 25% of fund (up to a general maximum of £268,275). As a result, lump sum withdrawals have jumped, prompting HMRC to issue a reminder that there is no going back: once you have taken the tax-free lump sum, it cannot be unwound under cancellation/cooling off rules. Last year similar rumours encouraged lump sums to be crystallised, only for some of those who did so to regret removing funds from a UK tax-free environment.

·       Pension contributions. Another regular pension rumour that has reemerged this autumn is that the rate of tax relief on pension contributions will be changed from your marginal rate of income tax to a flat rate. If you are a higher, advanced or additional/top rate taxpayer such a change would almost certainly be disadvantageous, but if you are a basic rate taxpayer, then it could be to your advantage.

·       Realising capital gains. In 2024, realising capital gains before the Budget worked as a strategy because the capital gains tax rates increased. However, in earlier years it has been a strategy that only produced a tax bill that might otherwise have been deferred as rates did not change. This time around there is the added factor that HMRC do not believe raising rates further would necessarily produce a higher tax take for the Exchequer.

Action

There is little doubt the Budget will introduce higher taxes.

Trying to pre-empt Budget rumours becoming reality comes with risks. If you are thinking of making any financial transactions before 26 November, please talk to us first.

ISA news: more cash, less cash and crypto…

ISAs celebrated their 25^th birthday last year and, in 2025, they have gained more attention than for some time as the Chancellor, ever hungry for UK investment funding, has turned her attention towards them.

The ISA subscription conundrum

When HMRC published its latest set of ISA statistics (for 2023/24) in September, it showed that subscriptions to cash ISAs had:

·       Increased by two thirds over the previous year to a record of nearly £70bn; and

·       Were almost two and a quarter times as large as subscriptions to stocks and shares ISAs.

More money flowing into cash rather than stocks and shares ISAs is nothing new. As the graph below shows, in nine of the ten years to 2023/24, cash ISAs were the winners. Only in 2021/22 did stocks and shares ISAs do better, when a combination of ultra-low interest rates and a global stock market rally, after the early shocks of the pandemic, briefly reversed the cash-is-king mantra.

Source: HMRC

The surge of cash subscriptions in 2023/24 was helped by the highest interest rates for many years – the Bank of England rate was 5.25% for much of the period – and sharply falling inflation, which was down to 2.3% by April 2024.

However, subscriptions flowing into cash ISAs have not translated into greater overall value being accumulated in cash ISAs, as the next graph illustrates. There are two main reasons for this:

• Cash ISAs have higher inflows, but they also experience higher outflows. This is clear from the graphs which show cash inflows of between about £30bn and £50bn a year from 2016/17 to 2022/23 making only about £24bn difference to total value – with interest added.

• The corollary is that stocks and shares ISAs are rightly treated as longer term investments with fewer withdrawals and returns that can exceed what cash ISAs offer, although this is not guaranteed.

  
  

Source: HMRC 

A Budget cash cut?

This year there has been much media coverage about the coming Budget making a cut to the maximum cash ISA subscription. This has been fuelled by the Chancellor, who, in her July Mansion House speech, spoke of “…the potential for ISA reform to improve returns for savers”. In the Treasury’s view, ‘improve returns’ means more of ISA subscriptions going to buying shares, preferably of UK companies, rather than to cash deposits. The subtext is providing extra finance for UK plc without having to supply it from government coffers. One of the rumour mill suggestions is for a halving in the cash ISA subscription limit to £10,000.

Reducing cash subscriptions would also potentially yield savings for the Treasury as the tax it forgoes on cash ISAs is now much greater than it used to be, thanks to much higher interest rates than in the 2010s and those hefty subscription inflows.

Meanwhile, in crypto land…

While the focus has been on cutting cash going into ISAs, another part of government has been moving in a different ISA direction. In October, the Financial Conduct Authority (FCA) announced a change in its rules to permit retail investors to invest in Cryptoasset Exchange Traded Notes (cETNs). These are funds, similar to the more common Exchange Traded Funds (ETFs), which are designed to track the value of cryptoassets, such as Bitcoin, without technically owning the asset.

In response to the FCA move, HMRC announced that cETNs would also become eligible investments for ISAs, initially as part of a stocks and shares ISAs, but, from next April, confined to Innovative Finance ISAs (IFISAs).

It should go without saying that cryptoassets are generally high risk, speculative investments. Unsurprisingly, major ISA managers have not rushed to take advantage of the reform. Many do not offer IFISAs, which hitherto have been largely confined to peer-to-peer lending and, as at April 2024, accounted for less than 0.1% of the total ISA market by value.

Action

Many people do not need a cash ISA, if the personal savings allowance (£1,000 for UK basic rate taxpayers, £500 for UK higher rate taxpayers) covers all of their deposit income and means no tax is payable on that income.  

If you are considering a pre-Budget ISA investment – cash or otherwise – do discuss your options with us first. Just because the cash subscription could fall, that is not necessarily a reason to rush to investment now.

The unclaimed £1,500 million…

At first sight, it seems improbable that Donald Trump should copy an idea pioneered by Gordon Brown, the Blair era UK Chancellor, but that is what happened this year. The US President’s One Big Beautiful Bill allows the creation of ‘Trump Accounts’ for children born between 1 January 2025 and 31 December 2028 into which the US government will place $1,000 (about £750). Parents and their employers will be able to make limited top up payments until the account matures at age 18.

The UK lesson ignored

The UK predecessor of the Trump Account, the Child Trust Fund (CTF), was launched in January 2005 and lasted for six years before payments stopped shortly after a change of government. For children born between 1 September 2002 and 2 January 2011, the government made one payment of £250 (doubled for certain poorer families) plus, for early entrants to the scheme, another £250/£500 at age seven. In total 6.3 million CTFs were created, receiving about £2bn of government funding.

Just over a quarter of those accounts were opened in default by HMRC because the child’s parents or guardians had failed to act for a year after receiving the CTF voucher.

And now…

The first CTF matured in September 2020 and statistics recently issued by HMRC show that, by April 2025:

·       Nearly 2.3m had matured.

·       1.65m had either been claimed or transferred.

·       758,000 (33%) were unclaimed.

The unclaimed CTFs have an average value of around £2,000 each – hence the £1.5bn outstanding amount. HMRC says that 27,000 of the unclaimed accounts have values of at least £10,000, of which 7,000 are worth £25,000 or more.

The government saw the inertia problem coming down the tracks and, long ago, legislated to ensure that post-maturity CTFs continued to enjoy the same tax freedoms as they did before maturity. However, a CTF set up at least 18 years ago may not now be the appropriate investment for its adult owner.

Tracking down lost CTFs

The starting point to find a lost CTF is the HMRC’s locator tool (https://www.gov.uk/child-trust-funds/find-a-child-trust-fund). This can give the name of the CTF provider, which may well have changed as there have been many mergers of CTF administrators over the last 20 years. What the tool cannot show is the CTF’s value.

Action

It could be your 23-year-old graduate grandchild who is unaware of their CTF nest egg, created a couple of decades ago. Do not assume it has been sorted: with very few exceptions, if the adult’s/child’s date of birth fits within that 2002-2011 range they will have had a CTF.

CTFs were a product of their time. If you, your child or grandchild still have one, take advice on whether it is still the right savings choice. If the CTF has not matured, a transfer to a Junior ISA could be worth considering.  

The State Pension increase

With the publication of the September annual inflation figure, we now know – give or take statistical revisions – how much the main State Pensions will increase from next April.

The Triple Lock

Both the Old and New State Pensions benefit from the Triple Lock, a mechanism loathed by economists and treated as Kryptonite by politicians. As a reminder, this says the April 2026 increase will be the greater of:

• The annual CPI inflation rate to September 2025 (3.8%);

• The annual rise in average earnings (including bonuses) for the May-July 2025 period (originally put at 4.7%, but subsequently revised to 4.8%); and

• 2.5%.

There is no legislation for the Triple Lock, but assuming the government puts through a 4.8% increase that will mean (give or take roundings):

Pension	2025/26 £ pw	2026/27 £ pw	Increase £ pw	Increase £ pa
Old State	176.45	184.90	8.45	439.40
New State	230.25	241.30	11.05	574.60

Other State Pensions, such as the Additional State Pensions and any pension increases stemming from deferment will rise by 4.0%, in line with inflation.

Taxing matters

The New State Pension will amount to £12,547.60 in 2026/27, based on 52 weekly payments. The income tax personal allowance for 2026/27 is £12,570, as it has been since 2021/22 and will be until at least 5 April 2028. Even if the Triple Lock increase for 2027/28 is the minimum of 2.5%, it will still mean the New State Pension will be greater than the personal allowance and therefore partly taxable.

Worse still, if the recipient’s State Pension payment date is formally a Monday (i.e. the final two digits of their National Insurance number are between 00 and 19), they will be deemed to receive 53 weekly pension payments in 2026/27 (regardless of how frequently payments are made in practice), enough to exceed the personal allowance.

In practice few people receive precisely the New State Pension amounts set out above because of the transitional rules applied when the State Pension changed in 2016. However, it looks a near certainty that the issue of the frozen personal allowance and rising State Pension will become another problem for the Chancellor to deal with.

Action

£12,548 a year is not enough to provide a minimum standard of living for a single person in 2025/26, according to the Pensions UK’s Retirement Livings Standards.

The above-inflation State Pension increases are welcome, but if you want to enjoy a comfortable retirement, you will need much more than £240 a week…before tax.

A letter from HMRC

Nobody welcomes an unexpected letter from HMRC, but it is one of the many mechanisms the institution uses to check the correct amount of tax is being paid by its ‘customers’. Some letters are formal compliance checks, while others are closer to phishing exercises.

The dividend letter

The Institute of Chartered Accountants for England and Wales (ICAEW) recently reported that HMRC was writing to taxpayers about the dividend income from UK shares recorded on their 2023/24 income tax self assessment returns. The letters say that HMRC has “…seen quite a few mistakes in this area on tax returns, and [HMRC] wants to help you get this right.” It goes on to explain that HMRC have set up a dedicated helpline for any queries and reminds the reader that they or their adviser can correct their tax return online or write in with the revised information.

Why now?

HMRC’s apparent sudden concern about dividends probably has its roots in changes to dividend tax that have taken place in recent years. In the wake of the infamous Liz Truss mini-Budget, in autumn 2022 the then Chancellor announced that the dividend allowance (£2,000 in 2022/23) would be halved in each of the following two years to £500, its current level. Thus 2023/24, the tax year to which the letter relates, is one in which the dividend allowance fell to £1,000. 

At the time the allowance cuts were announced, HMRC estimated that over 3.2m people would be affected (i.e. pay more tax) in 2023/24, rising to 4.4m in the following tax year. The changes were expected to raise nearly £1bn by 2027/28. It may be that those numbers are not being met and that is why HMRC has entered into correspondence mode.

Action

If you receive one of the HMRC dividend letters, make sure you or your adviser checks your dividend receipts for 2023/24. If the total is wrong and you ignore the letter, you risk a higher tax penalty if HMRC takes further action. In any event you will have interest to pay on any underpaid tax.

If you still have share certificates and are tired of shuffling different shapes and sizes of dividend voucher, then it is probably time to talk to us about an alternative way of holding your portfolio.

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 HM Revenue & Customs practice as at 1 November 2025. 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.