That time of year has arrived again. How will you balance your finances in 2026?  

With New Year’s Day falling on a Thursday in 2026, many people will not resume work until Monday 5 January. In theory, that leaves you plenty of time to recover from New Year’s Eve indulgences, if necessary, and contemplate New Year’s resolutions. To help you with the latter, here are half a dozen financial resolutions to ponder:

1.    Get a will or, if you have one, make sure it is up to date: If you die without a will, the rules of intestacy take over. These may be appropriate if you are a married couple with 2.1 children, but even then, they may not produce the result you would want. Equally, an out-of-date will could mean your wishes are not met.

2.    Do not ignore that Christmas credit card debt: Most credit card debt is expensive – even a high street bank card could be charging 25% interest, with store cards often charging more. You cannot earn 5% on your savings, so it will usually be better to pay down the debt than save.

3.    Have a trawl through your bank statements: You could find that annual subscription that you either forgot you had signed up for, or discover a monthly cash drain triggered by clicking the wrong button when internet shopping.

4.    Make a note of the renewal dates for your household insurance policies: Insurance companies would prefer that you renew their policies automatically. If you know when renewal is due, you can check the market beforehand and be ready to switch (or haggle).

5.    Check the interest rate you are earning on your cash savings: Banks and building societies frequently pay a higher interest rate to attract new savers than they offer to loyal customers. The new saver bait can include time-limited bonus rates: you probably need to leave when the bonus expires.

6.    Consider switching to a fixed rate deal for your energy bills: 1 January will mark the start of a new Ofgem quarterly price cap for gas and electricity prices. If you are still on the standard variable tariff – which most people were after the 2022/23 energy crisis – you could save money and avoid the three-monthly tariff roller-coaster with a fixed rate offer.

The Financial Conduct Authority does not regulate will writing. 

The government has launched a consultation on a new way of drawing pension benefits.

Unless you work for Royal Mail, you probably have not heard of Collective Defined Contribution (CDC) pension schemes. The scheme is most easily understood as a halfway-house between:

·       Defined benefit (DB) schemes: which offer guaranteed benefits (usually related to final or averaged salary) funded by variable contributions.

·       Defined contribution (DC) schemes: which offer variable benefits, funded by fixed contributions.

CDC schemes generally have fixed contributions and targeted (not guaranteed) benefits. Investments and mortality risks are pooled, as in a DB scheme.

DB schemes have become largely confined to the public sector, because the private sector found variable contributions too variable and, when interest rates fell, too costly. DC schemes are now widespread in the private sector; their growth was boosted 13 years ago by the launch of automatic enrolment in workplace pensions.

Royal Mail’s CDC scheme was announced in 2018 and finally launched six years later. It remains the only CDC scheme in existence in the UK. One reason for this is that CDC works best for employers with a large enough workforce to make the pooling of investment and risk viable. In the private sector, larger employers long ago made the move from DB to DC, and see little to be gained by making another major change to employee retirement provision.

On the other hand, both the current and previous governments have wanted to encourage CDC. The current Pensions Minister, Torsten Bell, told the Financial Times that “We should be confident that this will play a significant part in our future pension system.” His comment coincided with the launch of a consultation paper on retirement CDC schemes.

The proposed retirement CDC will differ from other pension schemes in that it will:

·       Only accept transfers for retiring members of other schemes; and,

·       Will only have non-contributing pensioner members.

Pension benefits will be targeted, rather than guaranteed, a feature which the government suggests should provide higher overall returns. Legislation currently going through parliament will require pension schemes to give, ‘Guided Retirement’, which could further encourage CDC take-up.

The retirement CDC is still some years away. In the meantime, if you are approaching retirement, professional advice remains the starting point for optimising your pension benefits.

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested.

A government announcement has set tuition fees in England on a rising path once more.

In October, the UK Government announced a range of changes for post-16 education. What grabbed headlines were details of the proposed new ‘V Levels’, which will be “new vocational qualifications tied to rigorous and real-world job standard”. V Levels will form part of a new educational goal for two-thirds of young people to participate in higher-level learning – academic, technical, or apprenticeships – by age 25.

The Department of Education (DfE) press release included further news, which gained less coverage:

·       University tuition fees in England will rise in line with forecast (unspecified) inflation for the next two academic years.

·       Thereafter, subject to the introduction of new legislation, future years will see automatic increases in line with inflation.

As the graph above shows, even if the assumed and actual inflation is 2%, then by the 2028/29 academic year, English tuition fees will have crossed the £10,000 threshold – ten times their 1998/99 starting level.

Tuition fees are a different matter in other parts of the UK – in Scotland, for example, there are no fees for Scottish students attending Scottish universities. However, what England decides on fees plays a major role, both in terms of setting the tone and the level of tuition fees paid by students in Scotland, Wales and Northern Ireland, if they choose a university outside their home country.

The announcement of the new tuition fee escalator comes two years after a major change to the way student loans operate for new undergraduates in England; those who started their course before 2023/24 were unaffected. The latest loan rules – known as Plan 5 – have three important features:

·       Repayment is at the rate of 9% of income over £25,000 (frozen until at least 2027), starting in the April after leaving university.

·       Interest is charged at the rate of the Retail Price Index (RPI) inflation in March of each year (3.2% for 2025).

·       Any loan outstanding at the end of 40 years (or on death) is automatically written off.

Those terms apply to all student loans – both maintenance and tuition fees – so could cover £60,000 of debt for a new graduate. However, before you consider paying up front for your child’s (or grandchild’s) higher education, do take financial advice, as it may not be the most sensible option.

New rules from HMRC now mean a form of crypto investment fund is eligible for ISA investment. 

Source: Investing.com

In recent years, cryptoassets – ranging from Bitcoin through stablecoins to Bored Ape Yacht Club non-fungible tokens (NFTs) – have attracted considerable attention. The arrival of Donald Trump in the White House has boosted the crypto sector, despite stating in his first term that cryptocurrencies were “not money” and had value that was “highly volatile and based on thin air”. In his second term, however, it is reported that President Trump has personally earned millions of dollars from World Liberty Financial, a cryptocurrency company established by his sons in September 2024.

On this side of the Atlantic, there is a stark difference in the relationship between government and cryptoassets. There is no Starmer meme coin to rival the TRUMP meme coin, launched three days before the start of Trump’s second term. When in the role of Chancellor, Rishi Sunak said that he wished “to make the UK a global cryptoasset technology hub”, but three-and-a-half years later, there is little evidence of that happening.

The UK’s financial regulator, the Financial Conduct Authority (FCA), has spent much of this decade being distinctly cautious about cryptoassets, which were – and still largely are – classed as unregulated investments. In October 2020, the FCA announced a ban on a specific form of collective investment, Exchange Traded Notes (ETNs), which were linked to cryptoassets. The regulator said:

“The FCA considers these products to be ill-suited for retail consumers due to the harm they pose. These products cannot be reliably valued by retail consumers because of the inherent nature of the underlying assets, which means they have no reliable basis for valuation.”  

Five years later, almost to the day, the FCA lifted the ban on crypto ETNs, prompting HMRC to announce that these funds would be immediately eligible for inclusion in stocks and shares ISAs. However, HMRC also announced that after 5 April 2026, crypto eligibility for stocks and shares ISAs would cease, and crypto ETNs could only be purchased and held in Innovative Finance ISAs, an ISA variant that few ISA managers offer.

If you are tempted to hold crypto in an ISA, remember what the FCA had to say about cryptoassets back in 2020: they have no reliable basis for valuation.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice. 

This year’s Budget risked becoming the winter budget, arriving as late as possible on 26 November after a long, rumour-filled run in.

The Chancellor’s first Budget last autumn, on 30 October 2024, came following the early announcements of a raft of revenue-saving measures to fill her infamous “£22 billion blackhole”. Rachel Reeves’s second Budget moved four weeks nearer to Christmas and was preceded by two significant summer U-turns – on the winter fuel payment and disability benefit reform – that implied about £6 billion of revenue-raising would be required.

The long lead time to the Budget this year meant almost three months of speculation after summer’s end. Thankfully, the Treasury’s constant drip of leaked policy ideas and subsequently generated media rumours finally ended, leaving the Budget as something of a 70-minute anti-climax.

The main measures of the Autumn Budget 2025 included:

·       A three-year extension to the freeze on income tax bands and the personal allowances. The Institute for Fiscal Studies (IFS) had earlier calculated that a two-year freeze would mean that by 2029/30, nearly one-in-four taxpayers would face a marginal tax rate of 40% or more.

·       A £2,000 cap from 2029/30 on the amount of salary that can be tax-efficiently sacrificed for pension contributions. Any excess will be liable to national insurance contributions for both employer (at 15%) and employee (at up to 8%).

·       A reduction to £12,000 in the maximum subscription to a cash Individual Savings Account (ISA) from 6 April 2027 for anyone aged under 65. The overall subscription limits for an adult ISA (£20,000) and a Junior ISA (£9,000) are unchanged. The Lifetime ISA stays at £4,000, while the government consults on a new first-time buyer’s ISA as its replacement.

·       The abolition of the two-child limit for universal credit and child tax credit, set to reduce child poverty by around 450,000 children in 2029/30.

·       A two percentage point increase in the rate of tax on dividends for basic rate and higher rate taxpayers to 10.75% and to 35.75%, respectively, effective from
6 April 2026. The dividend tax rate is unchanged at 39.35% for additional rate taxpayers.

·       A two percentage point increase across all tax bands from 2027/28 for property and savings income.

·       The introduction of a three-pence per mile road charge for electric vehicles from April 2028.

The outcome was a Budget that did not deliver a headline punch but opted to tread a path between spending requirements and funding those requirements through additional borrowing and increased tax pressures.

For more information on any of these changes and how they could affect you, please contact us.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice. 

HMRC is sending out letters asking taxpayers to check their dividend totals.

You may have received something that starts like this:

“Dear XX

Please make sure your tax return included all your dividend income.

We’re writing to ask you to check your self assessment tax return for the year ended 5 April 2024. This needs to include all your dividend income from shares in UK companies.

We’ve seen quite a few mistakes in this area on tax returns, and we want to help you get this right. This letter isn’t a compliance check.

If you’ve told us you have an adviser, we’ve also written to them.”

So opens HMRC’s letter issued to a number of self assessment taxpayers. The fact that the document specifically says it is not a compliance check does not mean it can be ignored, although it indicates that HMRC probably have no relevant information.

The tax year covered is 2023/24, one for which most returns will have been sent back to HMRC by January 2025. 2023/24 was the first of two tax years in which the dividend allowance halved, going from £2,000 in 2022/23 to £1,000 in 2023/24 and subsequently to its current level of just £500.

When the cuts to the allowance were announced in the Autumn Statement 2022, HMRC estimated that about 3.2 million people would be affected in 2023/24, increasing to 4.4 million in 2024/25 (nearly three-quarters of all dividend recipients). The correspondence suggests that HMRC are not seeing the numbers that had been anticipated.

One problem for HMRC is that while there is an automatic system for banks and building societies to report interest paid, no such mechanism exists (yet) for dividends. This is likely historical – basic rate taxpayers generally had no tax to pay on dividends, a situation which continued when dividend tax credits were replaced by the dividend allowance (at the initial level of £5,000) in April 2016.

If you receive the HMRC dividend letter, make sure that your reported 2023/24 dividend totals are correct and, if not, you or your adviser should either amend your online tax return or write to HMRC by 31 January 2026.

If you find keeping track of dividends difficult, then consider a review of the way in which you hold your investments.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

A new report has shown conflicting ideas about retirement.

The report included two questions:

Question 1: At what age would you like to retire?

Question 2: At what age do you think you will be able to retire?

If your answers to those two questions are different, then you are not alone. The report found that the average answer to question 1 was 62.3 years old, while for question 2 it was 67.0, a gap of nearly half a decade. The difference was just 0.9 years for baby boomers – those closest to retirement age – and widest at 6 years for millennials (born early 1980s to late 1990s). Perhaps surprisingly, Generation Z (born 1997–2012), had both the earliest aspirational retirement age (60.1) and the earliest expected age (65.0).

Gen Z’s expected retirement age of 65 – five years below the baby boomers’ expectation – seems optimistic at best. At the earliest, Gen Z will not reach the current state pension age (SPA) of 66 until 2063. The SPA is set to rise to 67 by 2028, and this summer the government set in train a review for the move to SPA 68 – the law currently has the change set for 2046–48. So, it is possible that further reviews mean some of Gen Z may not start to receive their state pension until age 70.

The responses to another question in the report, about working beyond SPA, further muddied the waters of Gen Z’s aspirations about retirement age. Just over half of people aged between 18 and 34 in employment agreed with the statement “I’m expecting to have to continue to work beyond my State Pension Age”.

One possible way to square these contradictions can be found in Gen Z’s pessimism about the future of the state pension. 45% of Gen Z said that they do not expect the state pension will be available for everyone by the time they reach their SPA.

Gen Z’s apparent retirement inconsistency is not unusual. If you are unsure how your retirement plans fit together, the best answer to your questions is to take advice.

The value of your investment and the income from it can fall as well as rise and investors may not get back what they originally invested.

HMRC’s latest statistics show a jump in unclaimed Child Trust Funds (CTFs) to over £1,500,000,000.

CTFs had only a brief existence. They were launched in January 2005 by the previous Labour government and survived for just six years, before being culled by the Conservative /LibDem coalition government in 2011, shortly after it came to power. While the main reason for their demise was financial, it was also a fact that CTFs failed to capture the public imagination. Over a quarter of CTFs were opened by HMRC under a default process after parents or guardians had failed to act.

The government paid £2 billion into accounts for 6.3 million children born between
1 September 2002 and 2 January 2011, to which parents and others could add a top-up, initially of no more than £1,200 a year. This has since risen to up to £9,000 a year. In reality, most CTFs were funded with a single government payment of around £250, with a second £250 if the child reached age seven before 3 January 2011, when the government funding ended (although CTFs continued to exist).

Those payments took the form of a voucher, sent to the child’s parent or guardian, and were frequently ignored – leading to a high proportion of HMRC-opened CTFs. With hindsight, the default rate was an omen of the potential problems that would arise when CTFs matured at age 18.

The latest report from HMRC shows that as at 5 April 2025, there were 758,000 matured CTFs not claimed or transferred, over 60% of which had matured more than a year previously. The average value of the unclaimed plans was around £2,000, but some 27,000 plans had a worth of £10,000 or more.

To trace a CTF, the first port of call is the HMRC locator tool that can supply the name of the CTF provider, but not the CTF’s value.

A matured CTF enjoys the same tax freedom as ISAs beyond age 18. However, if continued investment is the goal, it still makes sense to review the option of a transfer to a new ISA, which will probably offer a greater investment choice and potentially have lower charges.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice. 

Nine months into 2025, investment performance may not be what you expect.

Source: Investing.com

The daily blog from Financial Times, FT Alphaville, runs a competition every Friday for a trivial prize, such as a T-shirt. The quiz typically involves a trio of graphs with the same question applied to each one: what is being plotted? The answers are usually esoteric: two recent examples were an Argentinian government bond and two classes of debt from First Brands, a US car parts provider that had recently – and spectacularly – failed.

The graph above is more straightforward than FT Alphaville’s offerings. It shows for the first nine months of 2025:

·       The price of a gold exchange traded fund (ETF),

·       The price of a FTSE 100 ETF, with dividend income reinvested, and

·       The price of an ETF linked to the S&P 500, the main US stock market, again with dividend income reinvested.

For consistency, the ETFs are all from the same provider, priced in US dollars and rebased to 100 at the end of 2024. Your challenge is simple: which is which?

The answer is that the top performer (?) at the end of the third quarter of 2025 was the gold ETF (+47.0%). Second (??) was the FTSE 100 ETF (+18.9%), and bringing up the rear (???) was the S&P 500 ETF (+13.1%). If you are surprised that the US takes the wooden spoon, you are probably not alone.

There are plenty of ways of explaining what has happened, but arguably they can be explained with a single word: dollar. In 2025, the shine has come off the US currency. Global investors have been unsettled by an environment in which tariffs of 25% or more can suddenly appear from a weekend message on Truth Social, Donald Trump’s social media company. As a result, there has been selling of the dollar or, for foreign owners of US shares, currency hedging against the dollar’s fall. Central bankers have also been less enthusiastic about holding the dollar in their reserves and instead have been paying more attention to – and buying – gold.

For private investors, the message is that currency still matters and that, although the US stock market has been regularly hitting new highs, the benefits for investors outside the US have been watered down by the weakening dollar.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested.

HMRC figures for 2023/24 show cash ISA subscriptions have increased by around 224% more than stocks and shares ISAs by the end of the decade.

Source: HMRC.

The Chancellor’s plan to reform individual savings accounts (ISAs) to “improve returns for savers” has been considered for some time. Rachel Reeves’s scheme is widely believed to mean the current £ 20,000-a-tax-year subscription limit for ISAs would be reduced for cash ISAs. Unsurprisingly, the investment management industry has been in favour of such a move, while the big banks and the Building Societies Association have been strongly against it.

Statistics published by HMRC in September cast a new light on the ISA debate. The data show that in 2023/24, subscriptions to cash ISAs were £69.5 billion, while stocks and shares ISAs attracted just over £31 billion. That brought the total amount invested in cash ISAs to £360 billion as of April 2024. It would be reasonable to assume the total now is well above £400 billion.

Now put yourself in the Chancellor’s shoes. If the Bank of England had £400 billion earnings and 4% Bank Rate, it would mean £16 billion of interest on which no income tax is being collected. The latest estimate from HMRC is that the cost of income tax and capital gains tax relief for ISAs was £9.4 billion in 2024/25, almost a fifth up on the previous year. Cutting back on the amount flowing into cash ISAs could reduce tax loss, even though the prospect of enhanced returns is a better story to present to the public.

To be fair to the Chancellor, there is some justification in her argument. As HMRC’s ISA Investment values and subscriptions graph illustrates, to a degree, the total value of stocks and shares ISAs grew more rapidly than cash ISAs over the ten years to April 2024. However, cash ISAs saw little net inflow for much of the period. It is easy to forget now that the Bank of England rate was no more than 1% between February 2009 and June 2022, assuring miserable returns for money held on deposit.

Before you rush to arrange a pre-Budget cash ISA, it is worth reflecting on what you are trying to achieve. If you just want to move a ready money deposit to a tax shelter, remember that unless you are an additional/top rate taxpayer, the personal savings allowance (PSA) covers up to £200 of tax on interest (20% for basic rate x £1,000 PSA or 40% higher rate x £500 PSA).

If you are setting aside money for long-term growth, then, as the Chancellor suggests, there could be better options.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.

Stocks and Shares ISAs invest in corporate bonds, stocks and shares and other assets that fluctuate in value.

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.

A new survey has revealed a high level of public unawareness of impending pension changes and the need to plan.

While there is plenty of media attention on what surprises might emerge in the November Budget, new research has suggested that many people are unaware of pensions reforms and changes to tax already in train.

A survey of 1,500 people aged 45 and over undertaken for a UK wealth manager revealed:

·       More than half of respondents were “not at all aware” of upcoming policy changes that could affect their pensions, such as the increase in State pension age from April 2026 and increased minimum age of 57 to access private pensions from April 2028.

·       29% of people intended to pass their pension savings on to family or heirs, either in part or in full, but only 15% said that they fully understood the tax rules around passing on their pension and had planned accordingly. Those claiming such knowledge were probably unaware that the final legislation on the subject is still months away. A more credible 23% admitted that they did not understand the rules “at all”.

The same survey found that over four in ten did not have an up-to-date financial plan or savings set aside for retirement. Just over a quarter had no plan at all. Almost the same proportion anticipated that they would only be able to afford a minimum standard of living once they retire.

If these findings resonate with you or possibly with family members, then it is time to act. Do not delay: the survey found over 40% of people saving for their retirement wish they had started sooner. To begin with:

·       Gather the details of your pensions, including those that you are no longer contributing to and plans linked to former employers.

·       Get a State pension projection by going to www.gov.uk/check-state-pension.

This will give you a starting point for your pension income, but it may not be that useful as different pensions will often have different starting dates. To complicate matters further, your retirement income will not just be pensions – there will be the income that can be generated from your savings and investments to consider.

If it all seems confusing or too much data, then it is time to do what 60% of the survey respondents had never done – take targeted financial advice. 

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

The ingredients to determine next April’s increase in the State pension are now clear and suggest a problem deferred until the 2026 Budget.  

Source: DWP, HMRC

The basis for increases to the old and new State pension is the ‘triple lock’, which sets the change in April to be the greater of:

·       Earnings growth for the period May to July in the previous year,

·       Consumer Price Index inflation to September of the previous year, or

·       2.5%.

The earnings growth figure, 4.7%, was published in mid-September. While the inflation data will not arrive until 22 October, prices would have to rise by an unlikely 0.9% between August and September for annual inflation to exceed 4.7%. That means State pensions should rise by 4.7% with the results shown below, unless the Office for National Statistics revises its earnings numbers.

The new State pension, which applies to anyone reaching State pension age after 5 April 2016, will be equal to £12,537 a year from April 2026. The income tax personal allowance is £12,570, as it has been since 2021/22. Given that the minimum State pension increase is 2.5%, and the personal allowance is not due to increase before 2028/29, that means from April 2027, the new State pension will exceed the personal allowance and, all other things being equal, attract a small income tax liability.

In practice, there are many people who already have a total State pension (including, for example, the State second pension) that exceeds their personal allowance. However, for the new State pension alone to surpass the personal allowance will be a milestone. Politically, it will be unfavourable, coming as it does after the Winter Fuel Payment controversy. To make matters worse, once the State pension exceeds the personal allowance, there is no going back unless the personal allowance is increased at a faster rate than price inflation.

There are also some potentially difficult problems for HMRC as the State pension is paid without PAYE deduction of tax applying. Will HMRC issue simple assessments to collect under £100 of income tax from those who only receive the State pension?

One potential consequence worth remembering in your retirement planning is that if your State pension more than covers your personal allowance, any private pension will be fully taxable.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

As the Autumn Budget approaches, government bonds are coming back into the spotlight.

In what can seem like an effort to confuse, government bonds are often referred to as gilts. There are two good reasons for the name:

·       In the distant era of paper certificates, government bonds were on gilt-edged paper.

·       There has never been an instance when the UK government has failed to make the payment due.

Gilts are effectively IOUs issued by the government to finance the gap between its expenditure and tax receipts. Gilt repayment dates range from less than 12 months right the way through to 2073. Over the years, different governments have generally repaid maturing gilts by issuing new gilts, a process that means the value of gilts outstanding steadily grows. As at early September 2025, the total amount of gilt debt was £2,751 billion – close to £40,000 for every man, woman and child in the UK. Those figures sound daunting, but relative to the size of the economy, they are not out of line with many other developed countries. The 2007/08 global financial crisis drove up government borrowing and, just as it was moving downwards, the pandemic arrived to add more debt.

In the current financial year, 2025/26, the government aims to sell just shy of £300 billion of gilts, of which more than half is needed to refinance maturing bonds. As of 16 September, it had sold £155.4 billion, and was on track to meet the target. So far, UK and international institutional investors have been willing to buy all the gilts the government puts up for sale, but, like all borrowing, that comes at a price.

The Office for Budget Responsibility estimates that in 2025/26 the government’s net interest costs will be £111.2 billion, equivalent to about one-third of all income tax receipts. Falling interest rates will do little to reduce the outlay in the short term, as the interest rate on a gilt is generally fixed or linked to Retail Price Index inflation.

Unlike some foreign governments, the UK government makes almost no effort itself to sell its bonds to the public. Nevertheless, individual investors have plenty of ways to invest in gilts, both through funds or directly. The direct route has attracted growing attention, not least because while gilt interest is taxable, gilt capital gain is tax free.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Are you considering drawing a lump sum from your pension before the Autumn Budget?

One of the major tax benefits of saving through pensions is that, generally, 25% of the pension’s value can be drawn as a lump sum, free of income tax, up to a maximum of £268,275. From the point of view of the law, that cash is defined as a pension commencement lump sum (PCLS) which, as the name suggests, must be taken at the same time pension income starts to be drawn. In practice, the level of regular income taken can be nil and the lump sum (and accompanying income) may be drawn in stages; there is no statutory requirement for your pension pot to be converted to cash and income all at once.

The future of the PCLS is a staple of pre-Budget rumours. Forty years ago, one of Chancellor Rachel Reeves’ distant predecessors, Nigel Lawson, teased about “the anomalous but much-loved tax-free lump sum” in his Budget speech, but made no changes. In the run-up to the Autumn 2024 Budget, the fate of the PCLS was subject to more than usual speculation, given that substantial extra revenue needed to be found. However, Reeves also left the PCLS unchanged. 

A recent response to a Freedom of Information request revealed the public has been taking the risk of an attack on the PCLS seriously:

·       In the six months to March 2025, over £10.4 billion was drawn as PCLS, more than a third above the level of the previous six months and nearly three-quarters higher than the total drawn in the half year to March 2024.

·       Over the entire 2024/25 financial year, the amount of PCLS withdrawn was 61% up on 2023/24. However, the number of savers making those withdrawals rose by only 29%, suggesting that the average PCLS taken was almost a quarter larger.

There is some evidence after last year’s Budget that some of those taking their PCLS regretted their actions. HMRC had to remind pension providers that “The payment of a tax-free lump sum cannot be undone.”

At this stage, nobody knows what the Budget will bring (or take away), but if you are thinking of drawing a PCLS now, make sure you also take advice before reaching a final decision.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

The former Deputy Prime Minister Angela Rayner’s recent problems with stamp duty land tax (SDLT) offer a salutary lesson. 

In early September, the Deputy Prime Minister (and Housing Secretary) resigned after discovering that she had underpaid SDLT by £40,000 on the purchase of a flat in Hove.

That Rayner missed the history of the additional tax liability was unfortunately ironic. The surcharge on stamp duty was introduced by Conservative Chancellor, George Osborne, in the Autumn Statement 2015, at a rate of 3%. It took effect from April 2016 and the rate was subsequently increased to 5% nine years later in the Autumn Budget presented by Angela Rayner’s then cabinet colleague, Rachel Reeves.   

The tax aimed to discourage buy-to-let and second home purchasers, who were often shopping for similar properties to first-time buyers in a pressured housing market. The basis of the additional tax required the buyer to pay extra SDLT if they owned another residential property on the same day that another property was bought. That might sound simple enough, but the legislation to achieve it was not, involving the closure of potential loopholes, such as buying the second property through a company or using trusts to shift ownership.

It was the latter anti-avoidance measure which tripped up Angela Rayner. She had sold the 25% interest in her first home, in Ashton-under-Lyne, to a trust for the benefit of her disabled child before buying her Hove apartment. Paragraph 12 of Schedule 4ZA of the Finance Act 2003 deemed that such a sale meant that Rayner was still treated as owning the property for SDLT purposes.

While Rayner had sought guidance on her SDLT position, the advice she received was qualified by the acknowledgement that it did not constitute expert tax advice and was accompanied by a suggestion, or in one case a recommendation, that specific tax advice be obtained. Had Rayner paid heed to those warnings, she would not now be facing a potential tax penalty of up to £12,000 for ‘carelessness’, in addition to the £40,000 extra SDLT.

The lesson of the whole episode and one to keep in mind whenever advice – particularly in the financial area – is needed: make sure you are talking to an expert who stands behind their judgement.

The Financial Conduct Authority does not regulate tax advice.

The Department for Work and Pensions (DWP) have been surveying 40–75 year olds, with some interesting responses.

The DWP have recently released the results of its second ‘Planning and Preparing for Later Life’ survey, based on questions posed to over 4,000 people aged between 40 and 75. The answers showed some conflicted – or perhaps just wishful – thinking. For example:

·       State pension: Around two-thirds of people below State pension age (SPA) said the amount of State pension they receive would be very important/important in their decision on when to retire. That supports the findings of other research. For example, in 2023, the Institute for Fiscal Studies found that on average the State pension (currently £230.25 a week) made up 44% of income for households aged 66–70 and 71% for the poorest fifth of that group.

Nevertheless, the DWP survey showed that 44% of people expected to retire before their SPA (currently 66, rising to 67 by April 2028). In terms of an ‘ideal retirement age’, those who had not yet retired settled on a median age of 60. Anyone retiring at that age now will be left with a seven-year State pension gap of over £83,000 (plus triple lock increases) to fill.

·       Planning for retirement: Despite the ideal retirement age of 60, the pattern of saving for retirement suggested other goals had a higher financial priority. Only 59% said they started saving for their retirement in their 20s or 30s. What the DWP described as “actively planning” for retirement began at a later age. 45% of people who were semi-retired and 40% of those fully retired did not start active planning until their 50s. Only about one-in-five of semi-retired and fully retired people entered the active planning phase earlier in life.

·       Income adequacy: 41% of people said they ‘had no idea’ how much income they would need in retirement. Yet when asked how confident they felt about their pension decisions on a scale of 1 to 10, the same people gave themselves an average score of 5.1, with only about one-in-eight owning up to 0 confidence.

If some of those conflicting responses resonate with you, one other finding of the survey is worth noting: people with a private pension who had used regulated advice or guidance in the last 12 months felt more confident making decisions about pensions.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

August’s cut in interest rates of 0.25% was far from straightforward and has implications for future moves.  

Source: Bank of England

The Bank of England was given independence to set interest rates in May 1997. Since then, the Bank Rate has been decided by a vote of the Monetary Policy Committee (MPC), which consists of nine members – five from the Bank and four externally appointed. At first sight, nine members should ensure that any vote achieves a majority, which was the case until 7 August 2025. 

On that day, the first round of voting failed to produce a majority:

·       Four MPC members voted to leave rates unchanged;

·       Four MPC members voted to cut rates by 0.25%; and

·       One MPC member voted to cut rates by 0.5%.

The 4–4-1 result prompted a second vote, this time with the question being whether rates should be cut by 0.25%. The outcome was 5–4 in favour of the reduction, so the Bank Rate fell to 4%.

The unprecedented second round of voting was not the only starring role for the figure of 4%. The MPC’s minutes showed that the Bank had increased its estimate of peak consumer prices index inflation to 4%, arriving in September 2025. It is unusual for a central bank to cut rates in the face of rising inflation, but not as rare as a second MPC vote.

The Bank, like the Chancellor, is concerned about the weakness of the economy, which grew by only 0.3% in the second quarter. At the margin, lower interest rates should give the economy a boost. As for inflation, the Bank is ‘looking through’ the autumn rise and projecting that inflation will “fall back thereafter towards the 2% target”. It blames the move upwards on “developments in energy, food and administered [e.g. utility] prices”.

What does all this mean for the future of interest rates? The MPC offers an evasive answer, saying “policy is not on a pre-set path, and the Committee will remain responsive to the accumulation of evidence.” The majority of the MPC will likely want to see the Budget’s contents in the autumn before making any further moves.

In the meantime, income yields on medium- and long-term government bonds look attractive, having risen to levels not seen in over 15 years.

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

The government has published its reply to the many responses made to last October’s consultation paper on bringing pensions within the scope of inheritance tax (IHT).

In last October’s Budget, the Chancellor announced two major changes to IHT, both of which were immediately put out to consultation. The first, which takes effect in April 2026, involves a reduction in business and agricultural reliefs, which has attracted considerable media attention – recall the tractors paraded down Whitehall. The second change, to bring pension death benefits within the scope of IHT from April 2027, attracted less media interest, even though longer-term it will be the more significant revenue raiser.

As Parliament shut up shop for the summer, the Treasury issued its summary of the 649 written responses to last year’s consultation document, alongside draft legislation, providing perfect summer reading for pension followers. The summary of this high number of responses revealed two results:

·       The good news is that the Treasury has decided that all death-in-service benefits (typically a lump sum expressed as a multiple of salary) will be exempt from IHT. This will mean that some death benefits currently subject to IHT will not be subject to it from April 2027.

·       The bad news is that in all other instances, the proposal to apply IHT to pension death benefits remains. However, the government has changed how the tax will be collected.

In last year’s consultation, the government announced that pension scheme administrators would be responsible for reporting and paying any IHT due. Unsurprisingly, the pension industry rebelled against the idea, pointing out that it would drag every pension into the IHT administrative process, despite over three-quarters of cases having no IHT liability.

In response, the government has decided that the deceased’s personal representatives, who already administer the non-pension estate, will be liable for reporting and, initially, paying IHT on pension death benefits.

The shifting of responsibility raises fresh issues, which the government has attempted to address by giving the personal representatives three options:

1.    Pay the IHT due directly from the estate’s resources.

2.    Arrange for the pension beneficiaries to request that the pension scheme administrators pay the IHT due.

3.    Allow the pension beneficiaries to receive the full pension benefit and then personally settle the accompanying IHT bill.

If your beneficiaries could be affected by this extension of the IHT regime, the sooner you start planning for it, the better.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax or will advice.

Shortly before Parliament closed for its summer holidays, the government announced a review of the State pension age (SPA).

Pensioners are a sensitive topic for the government. Not only has it been forced to make a U-turn on winter fuel payments, but it has also had to stand firm against the Women Against State Pension Inequality who were affected by the increases in the SPA in the 2010s. So it likely did not relish the requirement inherited from the previous government to undertake a fresh review of the SPA within two years of being elected. 

In mid-July, as part of a bring-out-your-dead pile of announcements made just before the summer recess, the Department for Work and Pensions (DWP) revealed two fresh SPA reviews. As was probably hoped, the news was swamped by other government statements, such as the relaunch of the Pensions Commission, which appeared on the same day. Nevertheless, the SPA review will have significant impacts, both for individual and government finances.

The current situation is:

·       SPA is 66 for men and women.

·       It will gradually rise to 67 over two years from next April.

·       Currently, the SPA increase to 68 is legislated to be phased in over two years from April 2044.

·       The first review, published in 2017, proposed that the SPA should rise to age 68 from 2037–39.

·       A second review (in 2022) proposed 2041–43 for the move to 68.

·       Both reviews prompted the government to promise another review before the final decision is made.

·       At least ten years’ notice will be given of any change to SPA.

The original 2037–39 proposal now looks unlikely to go ahead, not least because it would be hard to meet the ten-year notice requirement. However, there is another reason for delaying further change. Since 2037 was proposed, projections for UK life expectancy have fallen significantly. At the time of the first report, a man aged 68 in 2037 was projected to live 21.1 years and a woman, 23.0 years. The latest figures are 18.4 years and 20.9 years respectively, which would point to abandoning any increase to SPA. Government finances inevitably pull in the opposite direction, as the annual savings run to billions. 

Arguably the DWP has won its last two battles with the Treasury (over winter fuel and disability benefits). SPA is unlikely to be a third victory.

The government has announced the revival of the Pensions Commission, over 20 years after it was first launched.

In late 2002, Tony Blair’s Labour government asked Lord Turner to chair a Pensions Commission that would examine the future of non-State pension provision. The move was prompted by concerns that the rapid closure of private sector final salary pension schemes would leave employees with inferior – or no – retirement savings.

In 2006, the Commission proposed a radical restructuring that became automatic enrolment in workplace pensions six years later. By 2012, the Conservative/Liberal Democrat coalition was in charge, but there was a political consensus that the Commission’s recommendations should be followed through.

Since 2012, the workplace pension regime has been largely unchanged. The key elements are:

·       Automatic enrolment in an approved workplace pension for all ‘workers’ aged 22–65 earning at least £10,000 a year (about 16 hours a week at the National Living Wage).

·       Employer contributions of at least 3% of all earnings between £6,240 and £50,270 a year (band earnings).

·       Worker contributions to bring the total rate up to 8% of band earnings.

It is widely agreed that the system has been a success: 88% of eligible employees are now saving for retirement against 55% in 2012. However, the government is concerned that many are not saving enough based on its calculations:

·       Retirees in 2050 are on course for £800 (8%) less private pension income than those retiring today.

·       Four-in-10, or nearly 15 million people, are under-saving for retirement.

• Over three million self-employed (out of about 4.4 million) are not saving into a pension.

These issues have been widely acknowledged for years. In 2017, the last government published a paper examining increased contributions and reducing the minimum age to 18. Six years later, under backbench pressure, it passed an act allowing it to do both but chose to do neither.

The procrastination reflected a political reluctance to make employers or workers contribute more. There is a suspicion that the same anxiety is behind relaunching the Pensions Commission. Complaints about the cost-of-living from the electorate and the recent sharp increase in employers’ National Insurance contributions both mitigate against any rise in pension contributions. Eventually, after the next election, contributions will almost certainly increase. In the meantime, why not pre-empt the inevitable and start boosting your pension now?

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.