The Chancellor’s first Budget speech came with plenty of speculation around taxes, ISAs and fiscal discipline. While some of the more dramatic changes that were rumoured failed to materialise, there were still several announcements which could affect investors. Equally important was the government’s attempt to reassure markets that spending plans remain under control.
Here’s what advisers and their clients need to know.
Cash ISA reforms scrapped
Proposed changes to the Cash ISA were scrapped.
UK savers of all ages will be able to add up to the £20,000 ISA allowance in a Cash ISA if they wish. And you can transfer freely between Cash and Stocks and Shares ISAs.
This should give more reassurance to investors and savers and avoid further complexity in the ISA regime.
These reforms were originally intended to foster greater retail investment in the UK. A Starter ISA incentive was announced as an alternative way to encourage the UK to invest more, though this is subject to a consultation.
Tax on savings and property
Alongside the ISA announcements, Healey announced a 2% increase for tax on savings and property income.
The property and savings basic rate will be 24%, higher 44% and additional 49% from the 2027/28 tax year. The changes will impact those reliant on property and savings income not held in a tax wrapper.
Two-year window
Beneficiaries will no longer be taxed solely because pension and lump sum benefits are paid more than two years after the scheme is informed of the member’s death. Previously a two-year window applied after which any benefits would be taxed at the beneficiary's marginal rate of income tax. The rule change takes immediate effect as of 28 October 2026 and will be introduced through the Finance Bill 2026/27.
Changes for first time buyers
The government is reducing the Lifetime ISA (LISA) charge to 20% for purchases of property over £450,000 while other withdrawals will incur a charge of 25% if made before turning 60. This should make it fairer for LISA holders who wish to buy a house that costs more than the limit.
New details were released about the First Time Buyer ISA replacing the LISA in April 2029. It will offer a 25% bonus matching the LISA, but with the bonus paid on withdrawal. The property price cap will remain at £450,000 with a maximum total bonus of £20,000.
In more help for first time buyers a ‘Your First Home Scheme’ was announced. This will cost £4.7bn and provide first time buyers with 20% government equity loans, a reduced deposit requirement and five-year interest free period.
Tax allowance to shield state pensioners from income tax
The state pension is due to rise to £13,036 from April 2027 which would push it above the £12,570 personal allowance. A new tax allowance will be introduced, meaning those at state pension age with income at or below the full state pension, won’t pay tax on it.
As the state pension will increase, with the triple lock or Labour’s planned 2030 version, this allowance will increase to match any changes.
Capital Gains Tax
There were fears that Capital Gains Tax (CGT) could be increased, even to the levels of income tax, but this didn’t come to pass.
However, there will be a 10% founders’ relief for CGT for up to £10m of lifetime gains for qualifying founders of high growth innovative companies.
What does the Budget mean for markets?
For equities
Equity markets reacted positively, particularly in sectors that were affected. Babcock’s share price increased nearly 4% after an increase to defence spending to 3% of GDP by 2030 was announced.
Banks including Lloyds, NatWest and Barclays also saw increases. They’ll be facing an increase in the banking surcharge on their profits from 3% to 6%, but a much harsher tax had been expected due to profits rising due to higher interest rates.
Housebuilder stocks were flat despite the new First Time Buyer ISA and Your First Home Scheme being announced.
For bonds
The focus going into this Budget was on the fiscal rules and that spending plans remained credible. Bond markets have been worried about government debt around the world and have chastised governments that don’t appear to have matters under control.
Healey took great pains at the start of his speech to mention the rules and that all spending had been fully costed in the budget.
The Office for Budget Responsibility (OBR) predicted that the buffer the government has before it breaches its spending rules will fall to £15bn in 2029-2030 before rising to £22bn the following year.
Did it work?
Bond markets seem to have been pacified by a relatively uneventful budget. Bond yields dipped during the chancellor’s speech and have remained relatively steady, outperforming US, French and German debt.
However, we’re not out of the woods yet. Government bond yields could continue to face short-term headwinds from high energy prices and the rising inflation.
The key takeaway
For advisers, the key themes remain unchanged: tax-efficient investing, careful retirement planning and a close eye on inflation and bond markets. While the immediate market reaction has been relatively calm, the longer-term challenge of balancing growth, spending and government debt remains very much in focus.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
