Speculation was especially rife in the run-up to this Budget, yet most of the rumoured pension and IHT changes never materialised. This is a powerful reminder that reacting to headlines can lead to unnecessary disruption.
Financial planning works best when it’s based on confirmed legislation and long-term objectives, not short-term noise. Staying calm and reviewing plans regularly ensures your retirement and legacy plans remain on track, whatever the political chatter.
In summary, the Budget has brought some stability, but not without future challenges:
- Inheritance Tax (IHT) allowances stay locked until at least 2031, meaning more families could be affected as property and investment values rise.
- Clarity is provided on the transfer of the new £1 million allowance for Business and Agricultural Relief (being introduced from April 2026).
- Further suggested changes for how the relationship between Personal Representatives (PRs), Pension Scheme Administrators (PSAs), and beneficiaries will function (once pensions are brought into the scope of IHT from April 2027).
- Frozen income tax thresholds make pension planning more vital than ever for tax efficiency.
- And while pension tax relief and contribution limits remain unchanged, a cap on salary sacrifice National Insurance savings from April 2029 could reduce efficiency for higher contributions.
IHT: Allowances remain frozen
The IHT nil-rate band (NRB) remains at £325,000, with an additional £175,000 residence nil-rate band (RNRB) available in certain circumstances. These allowances have remained unchanged for several years and are now set to stay at these levels for the foreseeable future.
As asset values rise, estates may move closer to, or beyond, these thresholds without any deliberate change in financial behaviour.
IHT: Passing on up to £1 million using business and agricultural relief
From 6 April 2026, the Government plans to introduce a £1 million combined allowance for qualifying Business Relief and Agricultural Relief assets.
The Budget confirmed that any unused portion of this allowance can be passed to a surviving spouse or civil partner under the spousal exemption, providing greater clarity than earlier draft legislation published in July 2025.
Where conditions are met, this could allow couples to pass on up to £2 million of qualifying business or agricultural assets without an Inheritance Tax charge.
These reliefs remain complex and subject to strict conditions, so regular review is important to ensure assets continue to qualify and estate planning remains appropriate.
IHT: Changes to pensions from April 2027
The Government has confirmed planned changes to how pension death benefits will be handled for Inheritance Tax (IHT) purposes from April 2027.
Under draft proposals, personal representatives (PRs) will, in limited circumstances, be able to instruct pension scheme administrators (PSAs) to withhold part of taxable pension benefits to help settle any IHT due. PRs may also be protected from liability where pension benefits come to light after receiving HMRC clearance.
While intended to improve administration, pensions and IHT remain a complex area and these changes may lead to delays in payments to beneficiaries in some cases.
For our clients, this reinforces the importance of:
- Keeping pension nominations up to date
- Reviewing pensions as part of wider estate planning
- Taking advice as rules continue to evolve
Pensions: Income tax thresholds
With income tax thresholds remaining frozen, more individuals may find themselves paying tax at higher rates as earnings rise. In this environment, pension contributions can continue to offer valuable tax efficiency, particularly for higher-rate taxpayers and those receiving employer contributions.
Reviewing contribution levels regularly helps ensure they remain appropriate for both current income and long-term retirement goals.
Pensions: Salary sacrifice arrangements
Salary sacrifice remains a common and tax-efficient way to contribute to workplace pensions, often reducing Income Tax and National Insurance for both employees and employers.
The Budget confirmed that from April 2029, the National Insurance advantages of pension salary sacrifice will be capped at £2,000 per year. Contributions above this level would attract both employee and employer National Insurance, reducing the overall effectiveness of larger salary sacrifice contributions.
To illustrate the potential impact, an individual earning £50,000 and aiming to contribute £5,000 into a workplace pension through salary sacrifice could see around 14% less paid into their pension compared with current arrangements, assuming take-home pay and employer costs remain broadly unchanged. The exact impact will vary depending on salary, contribution levels and employer policy.
It is also worth noting that 2029 is the latest possible year for the next general election, meaning this policy could be subject to more political tampering before it is implemented.
Ultimately, salary sacrifice is likely to remain suitable for many individuals. However, the right structure should be reviewed regularly to keep plans flexible and ensure they deliver the intended results as personal and external circumstances change.
How SMH Financial Services can help
At SMH Financial Services, we help clients review their estate planning and pension arrangements as part of a broader financial plan, considering retirement objectives, tax efficiency and legislative changes.
If you would like to understand how the Budget may affect your position, or whether your current arrangements remain appropriate, get in touch with us on info@smh.group or call 0114 266 4432.
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