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January Questions and Answers

Newsletter issue – January 2026

Q: As the limit to investing in cash ISAs is being cut, can I buy cash in a stocks and shares ISA to maintain the tax-free benefit?

A: It was announced in the Autumn Budget that, from April 2027, the cash ISA allowance will drop to £12,000 for under-65s. It is hoped that this will encourage more to invest in stocks and shares ISAs (up to £8,000 per year). Whilst you can hold cash inside a stocks and shares ISA you might lose the tax-free benefit.

HMRC has stated that it may impose a 20% levy on interest earned from cash held in a stocks and shares ISA. This is intended to stop savers from bypassing the reduced cash ISA allowance announced in the Budget.

Q: Can you help me to understand what the impact will be on my take-home pay and pension of the salary sacrifice changes announced in the Budget?

A: At present, the salary sacrifice scheme works by you giving up part of your salary for your employer to pay it into your pension. This means that both you and your employer avoid paying income tax and National Insurance (NI) on that portion. From April 2029, the NI benefit will be capped at £2,000 meaning contributions above this will lose the NI saving (but still receive the income tax relief).

This will result in a reduction to your take-home pay. It may also affect how much your employer contributes to your pension as they, too, will be impacted by the cap. The change is a long way off, so it is worth continuing with it, especially if you are a high earner. But please get in touch and we can discuss your personal circumstances in detail to see how the cap will affect you.

Q: I was thinking of deferring getting my state pension, so that I get more later. Are there any tax implications to this, post the Budget announcements?

A: The Chancellor confirmed that retirees whose only income is the state pension will not pay income tax for the rest of this parliament, even though pension payments will rise above the tax-free threshold in 2027. However, the Treasury clarified that this exemption applies only to the standard state pension without increments. Those who defer their pension (and thus receive higher payments) will not qualify.

Deferring increases the pension by approximately 1% every nine weeks (about 5.8% per year), adding about £13.35 per week. If you are eligible in 2026/27 but defer by one year, you would pay £828 in tax by 2030, compared to £0 if you had claimed on time.

Deferring the UK state pension used to be a way to boost income, but under the new rules it now risks triggering tax charges that wipe out much of the benefit.