How families can fight back against looming tax hikes | Personal Finance | Finance
Households already feeling squeezed by this year’s tax hikes are being warned the pain is far from over – with a fresh wave of changes due in April 2027 set to bite into savings, pensions and property income.
A combination of higher taxes and frozen thresholds means millions could quietly end up handing over more of their income, even where headline rates appear unchanged. Here’s how the next round of changes is shaping up – and what you can do now.
Pensions dragged into inheritance tax net
One of the biggest structural changes will see pensions pulled into inheritance tax calculations from April 2027. Currently, pensions often sit outside an estate for tax purposes. But under the new rules, unused pension funds and certain death benefits will be included – potentially increasing the number of families facing a bill.
At present, only around 4% to 5% of estates pay inheritance tax. That share is expected to rise as a result. Couples can still combine allowances – including the £325,000 nil-rate band and £175,000 residence allowance – allowing up to £1m to be passed on tax-free in some cases.
What to do: Check wills and pension “expression of wishes” forms are up to date, and consider using gifting rules or drawing on pensions earlier to reduce the taxable estate.
State pension set to breach tax threshold
The state pension is also on course to cross the personal allowance for the first time. With the triple lock in place, even a minimum 2.5% rise could push the full new state pension to about £12,860 in 2027-28 – above the £12,570 tax-free threshold.
That could leave around £290 exposed to tax, creating a potential bill of roughly £58 at the basic rate. While those with no other income may be protected, even small additional earnings – from savings or a private pension – could trigger a tax charge.
What to do: Structure income carefully by using tax-free wrappers such as Isas and consider spreading or deferring other pension income to avoid tipping over the threshold.
‘Stealth tax’ freeze drags on
Perhaps the most far-reaching impact comes from frozen income tax thresholds, which remain locked at 2021 levels. The personal allowance (£12,570) and higher-rate threshold (£50,270) are due to stay unchanged until at least 2031.
As wages rise, more people are dragged into higher tax bands – a phenomenon known as fiscal drag. Higher earners face an especially sharp cliff edge between £100,000 and £125,140, where the withdrawal of the personal allowance creates an effective 60% tax rate.
What to do: Consider boosting pension contributions or using salary sacrifice to reduce taxable income and avoid being pushed into higher tax bands.
Savings tax set to climb
Savers face a direct hit from April 2027, with tax on interest rising by 2 percentage points. That would take basic-rate taxpayers to 22%, higher-rate to 42% and additional-rate to 47% – once allowances are used up.
While the personal savings allowance remains in place (£1,000 for basic-rate and £500 for higher-rate taxpayers), top earners get no protection at all – meaning every pound of interest could be taxed.
At the same time, the cash Isa allowance is due to be cut to £12,000 for under-65s, limiting how much can be shielded from the taxman.
What to do: Make full use of Isa allowances while they are still higher, as interest and investment growth inside an Isa remains tax-free.
Landlords face fresh squeeze
Buy-to-let investors are also in the firing line, with tax on rental income rising by 2 percentage points. The increase adds to a series of pressures already facing landlords, including tighter regulation and higher borrowing costs.
The risk is that some investors could exit the market altogether – reducing supply and potentially pushing rents higher for tenants.
What to do: Review mortgage arrangements and costs carefully, and consider whether restructuring – such as refinancing or incorporation – could improve tax efficiency.
