While much of the attention around the Budget focuses on the Chancellor’s latest announcements, don’t overlook the impact of tax changes introduced in previous years.
As Steven Holden, Tax Director at Edwards Chartered Accountants, highlighted in his recent article, The Budget is about more than speculation: why the cumulative tax burden matters, it is the combined effect of successive tax changes, frozen thresholds and rising business costs that is creating increasing pressure for businesses and individuals.
Even when individual changes seem modest, their cumulative impact can be significant, affecting business profitability, cash flow, personal income, and long-term financial plans.
Several important tax changes announced in previous Budgets are due to take effect in 2027. Understanding how these changes interact and planning early could help business owners and individuals manage their overall tax position more effectively.
Here is a reminder of the key changes coming into force and what they could mean for you and your business.
Inheritance tax changes for unused pensions
One of the most significant changes to Inheritance Tax Planning will take effect from 6 April 2027. This change means that most unused pension funds and pension death benefits will be included in an individual’s estate when calculating inheritance tax.
Currently, many pension funds can be passed to beneficiaries outside the estate for inheritance tax purposes. From April 2027, unused pension wealth will generally be considered alongside property, savings, investments and other assets when assessing the estate’s IHT liability.
This does not mean every inherited pension will automatically be taxed. Existing IHT allowances and exemptions, including qualifying transfers to spouses and civil partners, will continue to apply. Certain death-in-service benefits and dependant pension benefits will also remain outside the new rules.
This could significantly change how they use pensions for retirement and succession planning. Individuals who have built up substantial pension savings, particularly those who have planned to leave their pensions untouched to pass wealth to the next generation, may need to reassess their retirement income strategy.
The risk of double taxation
Where someone dies aged 75 or over, beneficiaries will generally also pay income tax at their marginal rate when withdrawing inherited pension funds. Combined with the new inheritance tax charge, this could result in an effective tax rate of 64% for a higher-rate taxpayer, or as much as 67% for an additional-rate taxpayer. This makes it more important than ever to review how and when pension funds are drawn during retirement.
Changes to how income tax allowances are applied for multiple income streams
From April 2027, changes will also be introduced to the way personal allowances and certain tax reliefs are applied when calculating income tax.
Where an individual receives several types of income, including earnings from employment or self-employment, rental income, savings interest and dividends, allowances and relevant reliefs will generally have to be used against employment, trading and other income first, before being applied to property, savings or dividend income.
This replaces the existing approach, which generally allows reliefs to be allocated in the way that produces the lowest overall income tax liability. The changes could mean a higher overall tax bill for individuals with several sources of income.
Business owners who receive a combination of salary, dividends, rental income and savings interest should review how these different income streams interact, rather than considering each source in isolation.
Higher income tax rates for individuals with rental income
From 6 April 2027, new income tax rates will apply to income from property, following changes announced in the Autumn Budget 2025.
For landlords in England, Wales and Northern Ireland, the new rates will be:
- Basic rate: 22%, up from 20%.
- Higher rate: 42%, up from 40%.
- Additional rate: 47%, up from 45%.
The changes apply to individuals receiving taxable property income, rather than rental businesses operating through limited companies, which remain subject to corporation tax.
Relief for residential property finance costs will also be calculated at the new property basic rate of 22%, rather than 20%.
For landlords, the increase will reduce the income retained from rental properties after tax, potentially adding further pressure alongside higher borrowing, maintenance and regulatory costs.
Landlords should review their rental profitability, cash flow and tax position, particularly where they hold several properties or rental income pushes them into a higher tax band. The changes may also prompt some investors to reconsider how their property portfolios are structured.
Savings income tax rates increase
From April 2027, income tax on savings interest will increase by 2% across all tax bands.
The new rates will be 22% for basic rate taxpayers, 42% for higher rate taxpayers and 47% for additional rate taxpayers.
The Personal Savings Allowance remains unchanged, so basic rate taxpayers can still earn up to £1,000 in tax-free savings interest each year, while higher rate taxpayers receive an allowance of £500. Additional rate taxpayers do not receive a Personal Savings Allowance.
For business owners and individuals holding substantial personal savings, the change could increase the tax payable on interest earned outside tax-efficient savings accounts.
Those who have built up significant personal cash reserves, perhaps after a business sale, through dividends, or in preparation for retirement, may want to review how they hold their savings to keep them as tax-efficient as possible.
Making Tax Digital extends to more self-employed individuals and landlords
From 6 April 2027, Making Tax Digital (MTD) for Income Tax will be extended to self-employed individuals and landlords with qualifying annual income exceeding £30,000. Eligibility for this is determined based on qualifying income in the 2025/26 tax year.
This follows the introduction of mandatory MTD for those with qualifying income above £50,000 from April 2026.
Qualifying income is based on gross income from self-employment and property before deducting expenses, not taxable profit. If an individual receives income from both sources, HMRC combines the amounts to determine whether they meet the threshold.
Those brought into the scheme will need to keep digital financial records, use compatible software to submit quarterly income and expenditure updates to HMRC, and complete their annual tax return through the new system.
The government also plans to extend MTD to those with qualifying income above £20,000 from April 2028.
For sole traders and landlords who have traditionally relied on spreadsheets or manual bookkeeping, this represents a significant administrative change. Those affected should review their bookkeeping systems and speak to their accountant before April 2027.
Changes to reporting employee benefits through payroll
From 6 April 2027, employers will be required to report and pay tax on certain employee benefits through their payroll systems rather than relying on the existing annual reporting arrangements.
Initially, the changes will apply to company cars, car and van fuel, vans and employer-provided medical benefits. Employers will need to calculate and report the taxable value of these benefits through payroll, with the associated income tax and Class 1A National Insurance contributions handled in real time.
The new arrangements will extend to most remaining benefits from April 2028, although employer-provided loans and accommodation are currently excluded from mandatory payrolling.
For employers, the changes mean reviewing payroll software, employee benefits records and internal reporting procedures to ensure the correct information is available throughout the year.
Bringing employer National Insurance payments on affected benefits into the regular payroll cycle could also affect cash flow, as costs previously settled after the tax year will be paid throughout the year instead.
New carbon tax on imported goods
From 1 January 2027, the UK’s new Carbon Border Adjustment Mechanism (CBAM) will introduce a carbon tax on certain goods imported into the UK.
The measure aims to ensure imported carbon-intensive products face a carbon cost comparable to that of UK-produced goods. It will initially apply to specified products in five sectors: aluminium, cement, fertilisers, hydrogen, and iron and steel.
Businesses importing qualifying goods will need to assess whether they meet the £50,000 registration threshold and, where applicable, calculate and report the carbon emissions associated with those imports.
For manufacturers and engineering businesses that rely on imported materials, the changes could increase purchasing costs and create additional reporting requirements.
Businesses should review their supply chains, identify which imported products may be affected, and consider whether to reflect the additional costs in pricing and financial forecasts.
Cash ISA allowance reduced for under-65s
Changes to Individual Savings Accounts (ISAs), announced in the Autumn Budget 2025, will also take effect from 6 April 2027.
The overall annual ISA allowance will remain at £20,000. However, individuals under the age of 65 will be limited to contributing £12,000 a year into cash ISAs.
The remaining £8,000 of their annual allowance can be invested through other qualifying ISA products, such as stocks and shares ISAs, should they wish to use their full allowance.
Those aged 65 and over will continue to be able to contribute the full £20,000 annual allowance into cash ISAs.
For business owners and individuals who prefer to keep their personal savings in cash, the reduced allowance may require a review of their savings strategy, particularly alongside higher income tax rates on savings interest.
Company car tax increases for electric vehicles
From April 2027, the Benefit in Kind (BiK) tax rate for fully electric company cars will rise from 4% to 5%.
Although electric vehicles will continue to attract relatively favourable company car tax treatment compared with many petrol and diesel vehicles, the increase will mean a higher taxable benefit for employees and company directors.
For businesses that provide electric vehicles to directors or employees, the change will also increase associated employer National Insurance costs, assuming other relevant factors remain unchanged.
Businesses should factor the higher tax percentage into decisions about company vehicles, salary sacrifice arrangements and employee remuneration packages.
Frozen income tax thresholds continue to affect take-home pay
Although the main income tax rates on employment and self-employment income remain unchanged, the continued freeze on income tax thresholds is likely to increase the tax burden for many individuals.
The Personal Allowance remains at £12,570, while the higher rate income tax threshold in England, Wales and Northern Ireland remains at £50,270. The government has extended the freeze until April 2031.
As wages, salaries, and business profits rise, more individuals may move into higher tax brackets, even if their earnings have simply increased in line with inflation.
For business owners, this reinforces the importance of reviewing how profits are extracted from their companies, including the balance between salary, dividends and pension contributions.
Individuals should also consider how increasing earnings, rental income and investment returns could affect their overall tax position.
Looking ahead: Why professional tax planning matters more than ever
As these changes show, a Budget’s financial impact extends well beyond the announcements made on the day.
Higher taxes on property and savings income, changes to inheritance tax, frozen income tax thresholds and increasing compliance requirements can all add to the overall tax burden. For business owners in particular, the effect is often felt across both their business and personal finances.
As Steven Holden highlighted in his recent article, The Budget is about more than speculation, tax changes rarely happen in isolation. Their combined impact matters, particularly for businesses already managing rising costs and tighter margins.
This makes proactive, professional tax planning more important than ever.
Looking at individual taxes in isolation can mean missing opportunities to manage the overall tax burden. Decisions about business structure, how profits are taken from a company, pension contributions, investments and succession planning are often closely connected. What makes sense from one tax perspective may have implications elsewhere.
At Edwards Chartered Accountants, our experienced tax team works with businesses, business owners, and individuals to consider the bigger picture. By considering both business and personal tax arrangements, we can help identify opportunities to manage tax liabilities, plan for future changes and make informed financial decisions.
If you’re concerned about the cumulative impact of tax changes on your business or personal finances, speak to our tax team. We can help you review your current arrangements and develop a tax planning strategy that supports your wider financial objectives. Contact us today.