The Carbon Compass: monthly news insight

Quiet Changes, Meaningful Consequences.

As we begin 2026, recent regulatory and tax updates reinforce a familiar theme: meaningful change in financial planning is often gradual rather than headline driven. While none of the latest announcements fundamentally alter the landscape in isolation, together they underline the value of forward planning and regular review.

Agriculture and Business Property Relief

From April 2026, the combined Agricultural and Business Property Relief threshold will rise from £1 million to £2.5 million. For spouses and civil partners, this allows up to £5 million of qualifying assets to be passed on free from inheritance tax, in addition to existing allowances.

Although this provides greater flexibility for family businesses and landowners, reliefs remain conditional and subject to future change. Careful succession and estate planning therefore remain essential.

Savings and FSCS Protection

The FSCS deposit protection limit increased from £85,000 to £120,000 per person, per authorised institution from 1st December 2025, with the temporary high balance limit rising to £1.4 million.

This offers additional reassurance for those holding larger cash balances but also highlights the importance of structuring cash across different banking licences to ensure full protection.

ISA and Investment Changes

ISA allowances remain frozen until April 2031. However, from April 2027, individuals under 65 will see their cash ISA allowance capped at £12,000, while those over 65 retain full flexibility. The government is also consulting on a new first-time buyer savings product that could replace the Lifetime ISA.

From April 2027, the tax treatment of investment bonds will change in line with revised savings income tax rates. For UK (onshore) bonds, the internal life fund tax rate will rise from 20% to 22%, with the corresponding tax credit increasing at the same time. As a result, the overall tax position for higher and additional rate taxpayers remains broadly unchanged.

For offshore bonds, where no tax credit applies, the rates of tax payable on gains will increase across all income tax bands. While these changes do not materially alter the role of investment bonds within financial planning, they reinforce the importance of selecting the right wrapper and using bonds appropriately within a wider tax strategy.

Pensions and HMRC Updates

From April 2029, National Insurance relief on pension salary sacrifice will be restricted for contributions above £2,000 per year, reducing the efficiency of some arrangements.

Separately, HMRC tax refunds are no longer issued automatically and must now be actively claimed via the HMRC app.

Pension contributions

The amount you can save into a pension is the lower of £60,000 or your total pensionable income. A ‘carry forward’ rule allows you to bring forward any unused allowances from the previous three tax years which could increase your allowance to £200,000 (£60,000 this year and last and £40,000 from the two previous tax years) if your earnings are high enough. Even non-earners can make contributions of up to £3,600 and secure tax relief. You contribute £2,880 and tax relief tops this up to £3,600 automatically. For those with income over £200,000, remember that the annual allowance could be tapered, reducing the amount you are permitted to contribute. The most recent budget made significant changes to pension rules, so it may be useful to speak with a financial planner to understand the new rules before taking any action.

Business owners can make employer contributions from their business to their pension (please always check with your accountant as it needs to a justifiable expense) and receive corporation tax relief on contributions. Again, it is worth seeking financial advice if you are looking to make significant pension contributions from your business.

Final Thoughts

These updates are a reminder that financial planning is not about attempting to predict or second-guess future policy decisions. Instead, it is about building robust, flexible strategies that can withstand change as and when it occurs. By focusing on fundamentals, diversification and regular review, planning remains grounded in evidence rather than speculation, ensuring decisions are driven by long-term objectives, not short-term uncertainty.

If you have any questions or would like to have an informal chat with one of our financial planners, please contact us on enquiries@carbonfinancial.co.uk or 0131 220 0000.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.