Under 65? 3 important tax changes you need to know about

Just as you feel like you’ve got a handle on your finances, HMRC moves the goalposts.

Over the next few years, multiple legislative changes could push your tax bills higher. The new rules are far-reaching, with people across all ages and income levels potentially set to be affected in one way or another.

In particular, if you’re under 65, upcoming changes could hinder your goals as you look to save for the future, build your pension pot, and create a financial legacy for loved ones.

But by preparing for these changes and taking steps to maximise your tax efficiency, you may be able to mitigate the impact on your tax bills.

Here are three key changes under-65s should know about and the steps you can take now to improve your tax efficiency.

1. The tax-efficient limit for Cash ISAs will be reduced for under-65s from April 2027

Individual Savings Accounts (ISAs) are tax-efficient tools for growing your wealth.

In 2025/26, you can typically pay up to £20,000 a year into an adult ISA without being taxed on interest or returns. You can choose to pay the full £20,000 into a single ISA or spread the allowance across multiple types, including:

• Cash ISAs: Your savings grow with interest, with earnings on contributions up to the allowance typically exempt from Income Tax.
• Stocks and Shares ISAs: Your funds are invested, with returns generally exempt from Dividend Tax, Capital Gains Tax (CGT), and Income Tax.
• Lifetime ISAs (LISAs): You could receive a 25% bonus from the government on contributions up to £4,000 a year, subject to strict criteria. However, these accounts are expected to be replaced with a new type of ISA, as Money Marketing reports.

But, from April 2027, the tax-efficient allowance for Cash ISAs will effectively be reduced to £12,000 a year for under-65s, with £8,000 of the £20,000 allowance allocated to Stocks and Shares ISAs only.

The allowances will remain unchanged for those aged 65 and over.

As such, your opportunity to tax-efficiently grow your savings through interest in a Cash ISA is shrinking – potentially exposing some of your savings’ interest growth to Income Tax at your marginal rate.

To help mitigate the impact on your tax bill, it could be worth using a combination of both a Cash ISA and a Stocks and Shares ISA. That way, you can still use the full £20,000 tax-efficient allowance to grow your wealth, without growing your tax bill.

Pensions will be subject to Inheritance Tax from April 2027

Hypothetically, if you were to pass away in 2026, you could generally leave any unused pension savings to loved ones without the funds being subject to Inheritance Tax (IHT).

As such, pensions have historically offered a tax-efficient means of passing on wealth to the next generation. Some pre-retirees may even be contributing more to their pension than they plan to spend in retirement, hoping to mitigate their estate’s IHT charge.

However, this is set to change from April 2027. As announced in the chancellor’s 2024 Autumn Budget[TH1] , from next year, unused pension pots may be included in your estate for IHT purposes when you die.

Provided your net estate exceeds the nil-rate bands (£325,000, or potentially £500,000 if the residence nil-rate band applies), some or all of your remaining pension funds could be taxed at 40% when you die. As a result, many people could see less of their wealth going to loved ones, with more of it going to HMRC.

So, if you’re still saving for retirement and were planning to use your pension as a tax-efficient tool for passing on wealth, you may wish to review your strategy. While pensions will continue to offer a tax-efficient means of growing your retirement savings, the IHT benefits will be removed next year.

If leaving a financial legacy is a priority, creating a comprehensive estate plan could help you pass on more of your wealth to loved ones. A financial planner can help you evaluate your options for mitigating your estate’s IHT liability and design a holistic plan that encompasses both retirement planning and estate planning.

National Insurance savings through salary sacrifice will be capped from April 2029

If you pay into a workplace pension via a salary sacrifice scheme, you typically benefit from a reduced National Insurance (NI) bill. This is because the schemes effectively reduce your taxable salary in exchange for pension contributions.

As of 2025/26, the amount you can contribute to your pension through salary sacrifice and benefit from NI savings is capped at your annual earnings. You can use these savings to boost either your pension pot or your monthly take-home pay.

However, from April 2029, NI savings will only be available on pension contributions of up to £2,000 a year. You can still pay in more through salary sacrifice if you wish, but the NI benefits will be capped.

With Class 1 NI contributions (NICs) charged at up to 8% in 2025/26, this could have a potentially significant impact on your pension growth or monthly income if you’re currently contributing more than £2,000 a year through salary sacrifice.

Fortunately, there are a few ways you can improve your pension’s tax efficiency and boost your pot, from claiming additional tax relief (depending on your marginal rate of Income Tax) to maximising your employer’s contributions. A financial planner can help you create a comprehensive retirement plan to grow your savings and help mitigate the impacts of the upcoming salary sacrifice changes.

Get in touch

Whether you’re worried about growing your wealth with ISAs, your financial legacy, your pension pot, or all three, we can help you create a holistic financial plan tailored to your needs.

Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pensions Regulator.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.