If you’re retired, this year’s Autumn Budget introduced several updates that may affect your financial planning.

From threshold freezes and new property taxes to a rise in the State Pension, read on to discover what the Budget could mean for retirees.

The freeze on tax thresholds could mean more tax on your income and your estate

The chancellor’s decision to extend the freeze on Income Tax thresholds from 2028 to April 2031 is particularly important if you’re drawing from your pension.

Although the rates themselves aren’t rising, keeping the thresholds fixed for longer means that more of your pension will be liable for tax if you increase your withdrawals.

As inflation causes the cost of living to go up over time, you’ll need more money to finance your lifestyle, and the frozen thresholds will mean that more of your pension will be charged Income Tax.

It’s a good idea to create a retirement income plan to help ensure your money stays efficient once you start drawing from your pension and other savings. This can help you to balance your State Pension with drawdown and ISA savings, to mitigate tax on your retirement income.

If you already have a retirement income plan, you may still want to revisit it to make any necessary adjustments in light of the changes.

You can read more about how to do this in our previous article on the topic.

The tax rise on dividends, savings, and property could affect your alternative income sources

Alongside pensions and ISAs, you may also draw on other sources of income to support your retirement, such as dividends, rental income, or interest from savings. If you do, you may be impacted by the decision to increase most rates on these by two percentage points.

For any savings interest and property income above the allowances, the rates will be:

• 22% for basic-rate taxpayers
• 42% for higher-rate taxpayers
• 47% for additional-rate taxpayers.

For dividends, the new rates are:

• 10.75% for basic-rate taxpayers
• 35.75% for higher-rate taxpayers
• The rate for additional-rate taxpayers remains unchanged at 39.35%.

If you rely on income from investments, rental properties, or savings held outside of your ISAs, these increases could reduce the amount you’re able to keep.

Reviewing your financial plan now can help you explore ways to minimise the impact of this change. This could mean restructuring your investments, using your remaining allowances more effectively, or adjusting how and when you draw income.

The new property tax could increase your outgoings

If you own a property valued at £2 million or more, you’ll likely be affected by the new “mansion tax”, which is aimed at the top 1% of properties.

There are four bands under the new surcharge, which will be paid alongside your Council Tax. The bands start at £2,500 for properties valued between £2 million and £2.5 million and rise to a maximum of £7,500 for homes worth more than £5 million.

This tax is likely to impact retirees who are asset-rich and income-light, which is a common situation for homeowners whose property values have increased faster than their pension income.

While you may be able to incorporate the surcharge into your overall financial plan, you might also consider strategies such as downsizing, equity release, or other ways to unlock property wealth to help cover the cost.

A financial planner can work with you to assess your options, model different scenarios, and ensure you remain stable while covering the new tax.

The State Pension is set to rise 4.8%

The chancellor confirmed in the Budget that the State Pension will rise by 4.8% from April 2026.

This means that you’ll receive:

• £241.30 a week or £12,547.60 a year if you qualify for the full new State Pension
• £184.90 a week or £9,614.80 a year if you receive the old State Pension.

While the rise in line with the triple lock is welcome for pensioners, it’s important to note that the full new State Pension is only around £20 under the Personal Allowance. So, you’ll need to factor this into your retirement income plan, as it could mean more of your money is liable for tax.

The reforms to ISA allowances won’t apply to you if you’re 65 or older

The Budget also introduced reforms to ISA allowances, though these changes won’t affect those aged 65 or over.

Currently, all adults can save up to £20,000 each tax year across all their ISAs, including both Cash ISAs and Stocks and Shares ISAs.

From April 2027, the rules will change. Non-investment ISAs, such as Cash ISAs, will be limited to £12,000 a year. If you want to use the remaining £8,000 of the annual ISA allowance, you’ll have to put it into an investment ISA, such as a Stocks and Shares ISA.

However, if you’re aged 65 or above, you’ll still be able to place the full £20,000 into a Cash ISA.

This is because the government recognises that many retirees need the stability and easy access of Cash ISAs as a tax-efficient way to fund their retirement.

Get in touch

To find out more about how the Budget could affect your retirement and what you can do to accommodate the reforms, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

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

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.

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.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.