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Autumn Budget 2025: A tax hike that redefines wealth for a decade

Britain has entered a new era of even higher taxation

Sixteen months ago, Labour walked into Downing Street on a platform of “no major tax rises” and an £8.5bn package of revenue measures. Today, the picture is unrecognisable. Across just two Budgets, the Chancellor has now imposed £70bn of tax rises.

What was framed as “temporary and measured” has become a structural tax shift that hits working people, investors, entrepreneurs and property owners across the board.

What remains is a structural shift: Britain is now a high-tax, low-incentive economy, and working people are footing the bill in an attempt to keep Labour’s backbench benefits supporters on side, for now.

All figures used in this article are from Office for Budget Responsibility forecasts. Yes, that’s the OBR that leaked the entire Budget an hour early; with market-sensitive information available for all to see before even Labour’s own MPs knew its full contents.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

A tax system ratcheting up every year until 2031

Income Tax and National Insurance thresholds frozen for a decade

Perhaps the most consequential move is the extension of the Income Tax and National Insurance threshold freeze to 2030-31 – a full three years beyond what had been planned previously. While welfare payments have been index linked, working people will now suffer a decade of stealth tax, extracting £66.6bn a year from taxpayers by 2030-31. Despite manifesto pledges not to raise “taxes on working people”, the reality is a sweeping stealth raid on the financially productive.

Key impacts:

920,000 more people dragged into the higher-rate 40% band above £50,270
780,000 more low earners pulled into paying income tax above the personal allowance of £12,570
8.7 million higher-rate taxpayers by decade-end (almost double the 4.4m when the freeze began in 2021-22)
Those earning £50,000 will be £1,500 worse off
Someone earning £100,000 will be over £4,000 worse off

Different rates and thresholds of Income Tax apply to Scottish residents.

Mitigating solutions

Planning as a couple: Make full use of both partners’ allowances and tax bands where possible by thoughtfully allocating income-producing assets. If assets are transferred, this must be on an outright and unconditional basis.

Boosting pension contributions: A direct way to bring taxable income down while strengthening long-term retirement resilience.

Strategic charitable giving: Well-planned donations can meaningfully reduce your tax burden while backing the causes that matter most to you.

Reassess work commitments: As galling as it is that hard work no longer pays off; a couple might decide to reduce working hours between them, so as to keep their respective incomes just below a threshold and devote more of their time elsewhere.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

A direct hit on pensions and long-term investment

Salary sacrifice pension contributions – £2k to lose NI exemption from 2029

The Budget strikes at one of the last major tax advantages available to professionals: salary-sacrifice pension saving.

From April 2029, salary-sacrifice contributions above £2,000 lose their National Insurance exemption:

Employee NI: 8% up to £50,270 and 2% above £50,270)
Employer NI: 15%

Real-world example:

One earning £120,000 and making pension contributions of £20,000 via salary sacrifice, will now face an additional National Insurance bill of 2% on the amount of £18,000 above the £2k cap; equivalent to £360 a year.

The measure raises £4.7bn in 2029-30 and £2.6bn in 2030-31, but at the cost of undermining long-term saving behaviour and pushing more households back into punitive tax thresholds.

Mitigating solutions

Spouse/partner strategy: Balance income and assets between partners to leverage joint tax efficiency.

Diversify investment wrappers: Consider using ISAs and other vehicles, alongside pensions where their tax efficiency begins to diminish.

Maximise employer benefits: Ensure you contribute enough to qualify for full employer pension matching and confirm whether NI savings are passed on.

Review thresholds: If targeting income limits (e.g. £100,000), explore alternatives to salary sacrifice for reducing taxable income. Net pay arrangements, and making your own contributions to a private pension, are not exempt from National Insurance.

Tax relief on pension contributions above the basic rate of 20% must be claimed separately via your annual tax return.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Wealth and savings hit hard: ISAs, dividends and property income

Cash ISA allowance cut from £20k to £12k for under-65s from April 2027

In a further blow to savers, the Cash ISA allowance for under-65s is to be slashed by 40%. A significant £8,000 portion of one’s total ISA allowance will be reserved for non-cash investments only.

This poses a significant threat to one’s ability to accumulate cash savings, including emergency funds, in a tax-efficient manner.

Over-65s will reserve the freedom to use their full £20,000 allowance for cash each year should they choose to.

Please note that Cash ISAs are not available through St. James’s Place.

Dividend tax and savings income tax soar by 2 percentage points

Dividend tax rates for basic and higher rate taxpayers will rise by 2% as early as April 2026.

Basic rate moves from 8.75% to 10.75%
Higher rate increases from 33.75% to 35.75%
Additional rate remains at 39.35%

The dividend tax allowance remains frozen at a pitiful £500 a year.

Real-world example:

A higher rate taxpayer receiving a dividend of £20,000 will see it eroded by £6,971.25; nearly £400 more than previously.

Meanwhile, in a double blow to cash savers, Labour has now created a two-tier income tax system. From April 2027, savings income is to be taxed at a hiked rate of 47% for additional rate taxpayers; meanwhile higher rate taxpayers face a rate of 42%, and basic rate taxpayers will pay 22%.

Real-world example:

An additional rate taxpayer earning 4% annual interest on £50,000 in cash (a £2,000 gross return) currently pays £900 in tax; this will rise to £940.

Mitigating solutions

Spouse/partner strategy: Utilise a total of £24,000 a year available as Cash ISA allowances between two people. Make use of both dividend tax allowances totalling £1,000 a year.

Furthermore, where at least one partner earns less than £125,140, capitalise on savings income allowances of £1,000 a year for basic rate taxpayers and £500 a year for higher rate taxpayers. There is no savings income allowance for additional rate taxpayers.

Diversify savings wrappers: Consider using NS&I premium bonds up to £50,000 on which returns are tax-free.

Investors seeking lower-risk, tax-efficient options might use a Stocks & Shares ISA to access conservative strategies such as cash funds.

Another route is through fixed income assets (gilts and qualifying corporate bonds) which can deliver tax-efficient outcomes even when held outside a wrapper. While the income remains taxable, any capital gains are free from CGT. This makes lower-yielding bonds that generate most of their return through price movement an appealing, lower-risk alternative to traditional cash ISAs.

Consider crystallising chargeable events on onshore or offshore bonds before April 2027, allowing any gains to be taxed under the current, lower savings rates.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Please note that Cash ISAs are not available through St. James’s Place.

With thresholds frozen until 2031 and tax rises on savings, property, and dividend income, before then, proactive planning with a wealth adviser is essential.

Schedule a call

Property owners and investors hit with two critical tax whacks

Property income tax rises by 2 percentage points from April 2027

Landlords have been targeted yet again, with another two-tier example in property income tax facing newly hiked rates:

Basic rate: 22%
Higher rate: 42%
Additional rate: 47%

Real-world example:

A landlord earning £50,000 a year in rental income from a single, modest property will face a tax bill £1,000 a year higher than before. Multi-property portfolio landlords could see many times that eroded from their already constricted earnings; putting yet more pressure on rental market prices.

Homeowners stung by high-value council tax surcharge from April 2028

In this de facto ‘mansion’ tax; annual, unavoidable, and index-linked via valuation banding; owners of properties worth more than £2m face a new surcharge on their council tax bills.

Landlords themselves will face this cost as the owner of the property, as opposed to council tax paying tenants footing the bill.

Property value	Annual surcharge
£2m – £2.5m	£2,500
£2.5m – £3.5m	£3,500
£3.5m – £5m	£5,000
£5m+	£7,500

The measure will disproportionately hit London and the South East, and will become a long-term cost baked into ownership.

An estimated 145,000 properties will fall within scope. For many owners, securing the liquidity to meet the charge could prove difficult – particularly where the asset is a primary residence rather than a rental property.

Mitigating solutions

Accurate property valuations are crucial, particularly for assets near the threshold, taking into account factors that could raise or lower their value.

As the charge targets owners rather than occupiers, renting rather than purchasing a property may be a more attractive option.

Downsizing to a lower-valued property could reduce or even eliminate the liability.

Properties in Wales and Scotland currently appear exempt, which may present opportunities for those near the border. This may change in future Budgets by these devolved regions.

Consider the optimum location of high-value properties; holding a larger home abroad and a cheaper UK property if you still need a base, may be advantageous.

Splitting ownership between multiple individuals or entities could provide planning benefits. Converting a single property into multiple smaller units may also be worth exploring.

Individuals may want to review the structure through which they hold their properties and assess whether it remains appropriate.

Improving tax efficiency in other areas could free up liquidity to meet this charge.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Stealth Inheritance Tax (IHT) as it is frozen for even longer

Fiscal drag on estates worth over £325,000

The Chancellor has extended the freeze on IHT thresholds until 2030-31. This could bring in as much as £14 billion or more for the Treasury over the period.

Nil-rate band of £325,000 per person.

Residence nil-rate band of £175,000 per person, when passing main residence to direct descendants (tapered where overall value of estate exceeds £2m).

Individuals holding business assets, working farms, or qualifying AIM shares could, for the first time, become liable for IHT on these holdings. For example, a business owner with a £10 million shareholding could see their IHT liability rise from zero under current rules to £1.8 million from April 2026.

It’s important to note that previously announced reforms will mean pensions become subject to IHT from April 2027.

Mitigating solutions

Lifetime gifting; including making immediately exempt gifts from surplus income, provided it does not affect your standard of living; remains an effective way to reduce the value of your estate for IHT purposes.

Writing a Life Cover Plan into Trust may calculate to be a prudent solution to help meet an eventual IHT liability.

Placing qualifying agricultural or business property into a trust before April 2026 can currently be done without an IHT entry charge. From April 2026, only the first £1 million will be exempt if the settlor dies within seven years, with any excess subject to an entry charge. For business owners planning an exit and wishing to allocate shares into a trust as part of their succession strategy, there is still a limited window to transfer larger holdings without an upfront charge.

For full details, explore The Inheritance Tax Escape Route.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Business owners and entrepreneurs see investment incentives cut

Tax takes its toll on innovation

Writing Down Allowances cut 18% to 14% from April 2026
New 40% first-year allowance from January 2026
Dividend taxation up 2% from April 2026
Property income taxation up 2% from April 2027
EV road-pricing introduced at 3p per mile from April 2028
National Insurance thresholds held longer

Companies face higher friction across remuneration, capital allocation and investment planning just as borrowing costs tighten.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Yet more Capital Gains Tax hikes

CGT relief on qualifying disposals to Employee Ownership Trusts immediately cut in half

From 26 November 2025, CGT relief on qualifying disposals to Employee Ownership Trusts (EOTs) is reduced from 100% to 50% of the gain.

This change materially affects the net proceeds for business owners considering an EOT exit, with the effective tax rate rising from zero to 12% on the full gain. While employee ownership remains supported, the reduced financial incentive for vendors requires a reassessment of business valuations and personal financial planning strategies.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Other announcements

Venture Capital Trust income tax relief to fall to 20% from April 2026

VCT investments will see a reduction in upfront income tax relief but continue to offer tax-free dividends – a valuable income stream for many investors – alongside exemption from capital gains tax.

Qualifying EIS investments retain 30% upfront income tax relief, as well as inheritance and capital gains advantages.

As a BVCA member firm, Apollo is concerned by this reduction in income tax reliefs, which could lead to a decline in fundraising potentially impacting high growth investments that the government says it seeks to encourage.

Post-departure trade profits brought into tax net

Currently, distributions or dividends from “post-departure trade profits” (profits accruing to a company after an individual leaves the UK, calculated on a just and reasonable basis) are not subject to UK tax. From 6 April 2026, these profits will fall within the scope of the temporary non-resident rules, meaning dividends received while non-UK resident will become taxable in the UK.

Legacy Excluded Property Trusts to benefit from new cap

Excluded Property Trusts set up before 30 October 2024 will benefit from a £5 million cap on periodic and exit charges, with the cap applied retrospectively from 6 April 2025.

The farming tax U-turn: A political climbdown

In a rare moment of reversal, the Chancellor abandoned elements of her controversial “family farm tax” overhaul.

In the 2024 Budget a limit of £1million was introduced for agricultural property relief and business property relief, causing anger among farmers and businesses.

However, in the 2025 Budget Reeves confirmed this £1 million relief could now be transferred between spouses and civil partners if unused on first death. This means one half of a couple could now benefit from relief of £2 million.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Has anything been spared tax increases?

Pension income tax relief untouched
25% tax-free cash cap untouched at £268,275
Stocks & Shares ISA allowance remains £20,000
Capital gains tax rates unchanged
Gifting rules and inheritance tax rates unchanged
Salary sacrifice NI cap only applies to pensions; and not to EV schemes etc.

As a BVCA member firm, Apollo is pleased that the government have not introduced a new tax charge on partnerships. The LLP model is an important component of the UK’s competitive advantage as a global destination for business.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Future outlook and planning

The bottom line is that this Budget deepens the tax burden on earned income, property, investment and retirement.

Whether you’re earning, investing, building a business or holding property, this Budget materially changes your 10-year outlook.

Key moves now matter more than ever:

Restructure your pension approach before 2029
Overhaul your estate planning to mitigate soaring IHT liabilities
Model net property income at the new 22/42/47% tax rates
Plan for increased dividend taxation
Factor in the high-value property surcharge to long-term ownership costs
Rebalance portfolios in light of reduced VCT relief
Prioritise tax-efficient wrappers before further erosion; take advantage of allowances while they still exist
Stress-test overall net income under extended fiscal drag
Review succession planning given the new farming inheritance rules (and possible future changes elsewhere)
Protect wealth from both fiscal drag and market uncertainty.

This is not episodic tinkering – it’s a structural reset. And for affluent households, the difference between reacting and planning will be measured in five- and six-figure outcomes.

For higher earners, senior executives, contractors, company directors and entrepreneurs, this Budget isn’t something to simply read and move on from. It reshapes the wealth landscape for the rest of the decade.

If your financial life touches pay, pensions, property, investments, or business ownership, now is the moment to re-plan.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Still have questions?

Following the biggest set of tax increases in modern history, it’s an opportune moment to evaluate your family’s financial situation and objectives.

We encourage you to contact us, to ensure you are fully utilising all available allowances this year, and that you are adequately protected from risk, as far as possible, including any risk resulting from these changes.

Obtain support from an expert financial planner.

Create Your Bespoke Plan

UK economic picture

Welfare expansion and rising long-term fiscal risk

Welfare costs expected to exceed £400bn within a few years
Two-child cap scrapped: £3bn a year
Disability/PIP spending rising sharply
Higher-than-expected unemployment inflating welfare budgets
Revised asylum accommodation costs: £15.2bn (up from £4.5bn)
National debt heading to 96% of GDP

Fiscal space is evaporating just as taxation rises to historic highs.

The OBR flags acute risk exposure. A 35% global equity correction (AI bubble burst scenario) could blow £26bn out of the UK’s fiscal position. A more modest 15% market drop would still cut GDP by 0.6% by 2028.

Losses on the Bank of England’s QE programme now forecast to reach £164bn by 2036 – up £30bn from March’s estimate.

Meanwhile, the housing market is stagnating, retail is cooling sharply, and the country is already witnessing outward migration of higher earners and business owners.

SJP Approved 05/12/2025

Should you require more information or have particular questions, we invite you to contact us at your convenience.

The Inheritance Tax Escape Route

Your complete guide to preserving family wealth for 2025/26

How high‑earning families and business owners can build and preserve wealth across generations – with practical steps you can take this tax year.

With inheritance tax (IHT) thresholds frozen until at least 2030 and new pension tax rules taking effect from 2027, many families are asking the same question:

“Do I need to leave the UK to protect my wealth?”

The good news: you don’t. There are multiple estate planning strategies available that can significantly reduce or even remove an eventual IHT liability – without changing your residency or lifestyle.

Read this 1-min snapshot first

If your total estate could exceed £500k+ as an individual, or £1m+ as a couple, you’re in inheritance tax (IHT) territory. If you’re around £2m+, decisions about lifetime gifts, trusts, business relief and pensions will materially alter your family’s eventual outcome. Here’s the fast path:

Write/Review your Will (and Letters of Wishes) and Lasting Powers of Attorney.

Map out your estate: assets, liabilities, how they’re owned (sole/ joint/ trust/ company), and your domicile/ residence status.

Use allowances today: £3,000 annual exemption, wedding/ civil ceremony gifts, small gifts, and – the most powerful – regular gifts out of surplus income.

Plan around the £2m threshold: keeping your estate below the Residence Nil-Rate Band (RNRB) taper can increase the tax‑free amount that passes with the family home.

Protect business and farm assets: review eligibility for Business Relief (BR)/ Agricultural Property Relief (APR), as well as the reforms to these reliefs from April 2026.

Re‑think pensions: with most pensions facing IHT from April 2027, adjust nominations, drawdown plans, and wrapper strategy to avoid double‑tax traps.

Fund the bill: if you can’t (or don’t want to) gift enough, consider whole‑of‑life insurance written in trust and pay premiums from surplus income.

Consider structures: trusts (bare/ IIP/ discretionary, loan trusts, discounted gift trusts) and Family Investment Companies (FICs) to control, protect and direct wealth.*

Charity: leave ≥10% of the net estate to charity to reduce IHT from 40% to 36%.

Keep records: gift logs, income vs expenditure evidence, trust paperwork, valuations, ownership statements, and a family “financial map”.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

*Please note that advice in this area will necessitate the referral to a service that is separate and distinct to those offered by Apollo Private Wealth or St. James’s Place.

What’s changed and what’s coming

UK resident non‑domiciled individuals & IHT scope: from 6 April 2025, the UK has moved toward a residence‑based approach for IHT scope. Transitional rules may apply, and planning is essential if you have overseas assets.

Business & Agricultural Property Relief reforms: from 6 April 2026, BR/ APR will be modernised – including a £1m per‑person allowance at 100%, with only 50% relief above that, plus holding‑period and listing clarifications, and separate allowances for trusts/estates.

Pensions: from 6 April 2027, most unspent pensions are scheduled to be brought inside your estate and face IHT. This creates potential double tax alongside Income Tax on beneficiaries on the net proceeds.

With these major changes it is absolutely critical that you review your estate planning as soon as possible.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Arrange your no-obligation estate planning conversation with an expert wealth adviser

Select date and time

The 11 fundamental principles to mitigating unnecessary inheritance tax eroding your family’s wealth

Principle 1. How IHT works (2025/26)

Standard rate: 40% above the available Nil‑Rate Band (NRB) and Residence Nil‑Rate Band (RNRB).
NRB: £325,000 per individual, generally transferable between spouses/civil partners.
RNRB: up to £175,000 per individual when leaving a qualifying residence to direct descendants. Unused RNRB is transferable. There’s a downsizing addition if you’ve sold, gifted or downsized.
RNRB taper: the RNRB is reduced by £1 for every £2 that the estate exceeds £2,000,000. Importantly, the estate value for taper ignores BR/ APR and similar reliefs (so you can’t “taper‑proof” via BR/ APR alone).
Spouse/civil partner exemption: generally unlimited on transfers between UK‑domiciled spouses/ civil partners.
Charity: leave ≥10% of the net estate to charity, and the IHT rate on the rest drops from 40% to 36%.
When is IHT paid? Typically due by the end of the sixth month after death; some assets allow the option to pay by instalments. Probate is usually granted after IHT is settled, so it’s necessary to plan liquidity.

Lifetime transfers

Potentially Exempt Transfers (PETs): outright gifts to individuals become fully exempt if you survive 7 years. Taper relief reduces tax on failed PETs in excess of any available nil rate band after year 3.
Chargeable Lifetime Transfers (CLTs): gifts to most trusts are CLTs and can attract 20% lifetime IHT above your available NRB, with possible further tax if you die within 7 years.
Gifts with Reservation (GWR): if you keep some form of benefit (e.g. stay living in the gifted home rent‑free), the asset remains in your estate. Pre-Owned Asset Tax (POAT) may also apply to certain arrangements.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 2. Mapping your estate (so you can plan with it)

Build an inventory:

Property: main home, other UK/ overseas property; ownership (joint tenants/ tenants in common), mortgages, SDLT history.
Pensions: DC/ DB values; death benefit nominations; age 75 considerations; current drawdown; protected tax‑free cash; uncrystallised amounts.
Investments & cash: ISAs, GIAs, bonds, AIM shares; premium bonds; crypto; private equity and other investments.
Business interests: shareholdings, partnerships/ LLPs, carried interest; qualifying trading status; excepted assets.
Trust interests: you as settlor/ trustee/ beneficiary; type of trust; assets; appointment powers; 10‑year/exit charge cycle.
Insurance: policies, owners, lives assured; in trust?; beneficiaries?
Loans: intra‑family loans, loan trusts; director’s loans
Liabilities: mortgages, personal loans, guarantees, IHT loans, POAT charges.
Domicile & residence: your current status and history; exposure of overseas assets; treaty positions.

Outputs: (a) estimated taxable estate at death, (b) expected IHT liquidity (cash to pay), and (c) target actions this tax year.

An expert Private Wealth Adviser will help you gather this information and ‘model’ it, with various scenarios to show potential liabilities and mitigation actions.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

Principle 3. The £2m question: Restoring a tapered RNRB

If your estate exceeds £2m, your RNRB can reduce to zero. Practical ways to manage the estate value at death:

Time‑sequenced gifting
- Use annual/ small/ wedding exemptions now.
- Establish regular gifts out of surplus income (document the pattern and that your lifestyle is unaffected).
- Consider larger PETs early to start the 7‑year clock.
Charitable bequests
- Calibrate a residuary gift to charity so that your adjusted estate drops below £2m while also unlocking the 36% rate.
Trust strategies
- Loan trusts/ discounted gift trusts — retain access to an income stream while moving capital growth outside your estate, subject to CLT/ GWR/ POAT rules.
Business & agricultural planning
- BR/APR relief does not reduce the estate value for RNRB taper, but lifetime planning may still reduce your taxable estate and improve control.
Pensions & wrappers
- Historically, pensions sat outside IHT; with pensions scheduled to face IHT from April 2027, revisit the balance between ISAs, GIAs and pensions and your drawdown plan.

Worked example (simplified): Total estate £2.3m; home £900k left to children; couple with full transferable NRB/ RNRB. Because the estate exceeds £2m by £300k, the RNRB is reduced by £150k. Bringing the estate down to £1.99m (via gifts/ charity) can restore up to £350k of additional tax‑free band for the couple.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 4. Lifetime gifting that actually works

Use the easy wins first
- Annual exemption: £3,000 per donor per tax year (can carry forward one prior year if unused).
- Small gifts: £250 per recipient per tax year (cannot combine with the £3,000 exemption to the same person).
- Wedding/ civil ceremony: up to £5,000 to a child, £2,500 to a grandchild/ great‑grandchild, £1,000 to others.
The most powerful – regular gifts out of surplus income
- Gifts must be from income, regular/ normal, and not reduce your standard of living. Keep meticulous records (income/ expenses schedule, minutes/ letters, bank statements).
PETs vs CLTs – PETs (to individuals)
- no lifetime tax, fully exempt after 7 years; taper relief applies on failed PETs in excess of any available nil rate band after 3 years (tax on the gift, not the estate).
- CLTs (to most trusts): may trigger 20% lifetime IHT above NRB; further charges if death within 7 years. Trusts within the Relevant Property Regime may face 10‑year and exit charges.
Trap‑dodging – GWR/POAT
- Don’t keep using what you’ve “given away” (e.g. living in a gifted home) without paying full market rent; beware asset “share‑and‑stay” schemes.
- 14‑year look‑back: earlier CLTs can reduce the NRB available against later gifts, increasing potential tax if you die within 7 years of the later gift.
Record‑keeping pack (we’ll help you set up)
- Gift log (date, recipient, amount, exemption used, cumulative totals)
- Income vs expenditure statement (evidence for the “surplus income” rule)
- Valuations and letters of intent/wishes

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 5. Trusts: Control, protection and precision

Common trust types
- Bare trust: simple, assets belong absolutely to the beneficiary at age 18 (16 in Scotland); gifts are PETs.*
- Interest in Possession (IIP): named beneficiary has a right to income; can be pre‑ or post‑March 2006 with different IHT treatments.*
- Discretionary trust: trustees decide who benefits and when; offers control/protection; falls under the Relevant Property Regime (RPR).*
- Vulnerable beneficiary trusts: special tax treatment where conditions met.*
Charges under RPR
- Entry (usually CLT at up to 20% over NRB), 10‑year charges (up to 6% of value above NRB), and exit charges when capital leaves.
Popular planning structures
- Loan trust: you lend a lump sum to a trust; growth accrues outside your estate, while the loan remains repayable to you (no immediate gift for IHT, but loan forms part of your estate).*
- Discounted Gift Trust (DGT): you gift into a trust but retain a fixed, actuarially‑valued income stream; the actuarial “discount” can reduce the initial CLT/GWR exposure.*
- Life assurance in trust: Explained in greater detail in Principle 8.
When trusts help most
- You want control over timing/ quantum of distributions, or to protect beneficiaries (creditors, divorce risks, addiction, vulnerability).
- You’re comfortable with trustee responsibilities, reporting, and charges.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

*Please note that advice in this area will necessitate the referral to a service that is separate and distinct to those offered by Apollo Private Wealth or St. James’s Place.

Principle 6. Business & Agricultural Property Relief (BR/ APR)

Today’s position (high‑level)
- BR can provide 100% or 50% relief from IHT on shares in unlisted trading companies, interests in a trading partnership, or business assets used in a qualifying trade. Certain excepted assets may not qualify. Shares on certain junior markets may qualify depending on the rules.
- APR can relieve the IHT value of qualifying agricultural property.
Reforms from 6 April 2026 (headline points)
- A new £1,000,000 per‑person allowance for the combined value relieved at 100% across APR and BR. Value above the allowance receives 50% relief.
- Shares admitted to trading on certain recognised stock exchanges designated as “not listed” will receive 50% relief (not 100%).
- Qualifying periods and conditions will be modernised/ clarified, and trusts/ estates will have their own allowances.
What to do now
- Audit eligibility of business/ farm assets and any AIM/ quoted exposures.
- Consider timing of transactions, restructures, or succession ahead of April 2026.
- Ensure excepted assets are minimised and trading tests are satisfied.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 7. Pensions and the 2027 IHT change

Position until April 2027 (simplified)
- Currently, most unused DC pensions do not form part of the estate for IHT.
- Income tax applies to beneficiaries’ withdrawals if death occurs after age 75; pre‑75 deaths can be tax‑free (subject to rules and timing).
From 6 April 2027 (subject to legislation)
- Most unused pension funds are scheduled to be included for IHT.
- Spouse/ civil partner exemptions continue for death benefits paid to them.
- This creates a potential double‑tax effect (IHT at death plus Income Tax on the net proceeds when beneficiaries draw the fund), producing very high effective rates for some families.
Planning actions
- Refresh nominations (make sure trustees have clear directions, and review expression of wishes wording).
- Consider drawing part of the tax‑free Lump Sum Allowance and using it in‑life (spending, gifting, or funding insurance premiums) where appropriate.
- Balance wrappers: re‑assess the trade‑off between keeping wealth inside pensions vs. drawing and moving to ISAs/ GIAs/ trusts/ FICs.
- Integrate pension planning with your £2m RNRB taper strategy and overall IHT liquidity plan.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 8. Life Cover written into Trust to help meet a liability

If you have surplus income and want to retain capital (or can’t gift enough), consider a guaranteed whole‑of‑life policy written in trust to create liquidity for heirs.

Why trust‑own the policy?
- Keeps the sum assured outside your estate.
- Pays before probate, giving executors cash to meet IHT and other costs.
Best practice
- Pay premiums from surplus income (documented) where possible to avoid gifts counting against your NRB.
- Review joint life, second‑death vs. single life arrangements; consider waiver of premium options.
Illustrative cost
- As a reference point, a joint life, second‑death guaranteed whole‑of‑life for age‑65 non‑smokers with £400,000 sum assured can be c. £6k–£7k p.a. (provider‑ and underwriting‑dependent). Your actual premium will vary.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Principle 9. Charitable giving

Leave ≥10% of your net estate (the “baseline amount”) to charity and your IHT rate can drop to 36% on the remainder.

Consider donor‑advised funds or charitable legacies via Will; you can also structure lifetime gifts (with Gift Aid where appropriate) to reduce the eventual estate.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 10. Domicile, residence and overseas assets

From 6 April 2025, the UK has shifted to a residence‑based approach for the scope of IHT on worldwide assets, with transitional rules. Long‑term UK residence can bring overseas assets into the IHT net after a qualifying period.

If you have non‑UK assets, review exposure and treaty interactions; consider excluded property trusts and timing where appropriate (specialist advice essential).

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 11. Deeds of Variation (DoV)

Within 2 years of death, beneficiaries may vary an inheritance so they pass to others (including charity or trusts) and be treated for IHT/ CGT as if made by the deceased.

This can:

Restore RNRB by redirecting assets.
Reduce the overall IHT rate to 36% via charitable legacies.
Implement trusts where the Will didn’t.

All affected parties must agree; and we would refer you for legal advice.*

*Involves the referral to a service that is separate and distinct to those offered by St. James’s Place.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Pulling it together: Three mini case studies

A) Couple, estate £2.3m (home £900k), children as heirs

Goals: keep the family home; minimise IHT; keep flexibility.

Annual/small gifts and regular gifts out of income documented.
£60k charitable residuary legacy calibrated to bring estate below £2m at second death, to restore combined RNRB.
Loan trust established; growth now outside estate.
Whole‑of‑life policy £400k in trust funded from surplus income to create liquidity at second death.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

B) Entrepreneur with trading company and AIM portfolio

Goals: succession to children; use reliefs; prepare for 2026 reforms.

Audit trading status/ excepted assets; rebalance AIM exposures mindful of 50% relief treatment changes post‑2026.
Pass controlling shareholding to family trust with staged appointments; equalise estates between spouses.
Update Wills to capture BR/ APR efficiently.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

C) Widow with £1.7m pension + £600k ISA/ GIA

Goals: family provision with simplicity; aware of 2027 pension change.

Review beneficiary drawdown vs. lump sum; consider partial crystallisation and tax‑free cash gifting.
Increase ISA funding; consider charity legacy to reduce rate to 36%.
Evaluate whole‑of‑life in trust to fund residual IHT.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Your next 90 days (action list)

Estate inventory and ownership map (Principle 2).
Will and LPAs review; add letters of wishes (trusts/guardianship guidance).
Set up gift log and begin surplus income gifting (documented).
Decide on RNRB restoration approach if near/ over £2m (gift/ charity/ trust path).
Pensions: update nominations; model drawdown vs. wrapper relocation ahead of 2027.
BR/APR assets audit; plan around April 2026 reforms.
Explore trusts if control/protection needed.
Obtain quotes for a whole‑of‑life policy in trust funded from surplus income.
Build the IHT liquidity plan and executor instructions.
Schedule regular reviews; update on life events (property sales, business exits, windfalls).

An expert Private Wealth Adviser will help you put this plan into action.

Protecting your wealth from the taxman can be harder than creating it – but with early, structured planning and expert guidance, you can give your family the freedom, control and security you want for them. If any of this resonates, we’ll turn this into a personal plan and do the heavy lifting for you.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Wills as well as Trusts are not regulated by the Financial Conduct Authority.

Arrange your no-obligation estate planning conversation with an expert wealth adviser

Select date and time

SJP Approved 11/09/2025

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Avoiding the Retirement Tax Trap

A high net worth guide to investing for retirement; then drawing down tax efficiently

How high‑earning families and business owners can build wealth in anticipation of an early, affluent and tax-efficient retirement.

The retirement tax trap is straightforward: paying more tax than necessary by drawing the wrong money, from the wrong places, at the wrong time. For high net worth households this could be real money lost every year, compounding across decades and eroding legacies.

This guide is built to be your operational handbook. It explains how to:

Map your net-of-tax cashflow and direct funds to the right savings and investment wrappers;
Use ISAs, Pensions, GIAs, Onshore/Offshore Bonds and Trusts together – not in isolation;
Capitalise on today’s tax allowances and reliefs to invest more tax-efficiently (like the pension annual allowance of up to £60,000, and the removal of the Lifetime Allowance charge);
Sequence withdrawals to keep taxable income in low bands during retirement (while using allowances efficiently);
Plan for the 2027 pension‑IHT reforms to mitigate double taxation;
Deploy advanced moves (phased crystallisation, ‘bed & ISA’, bond segmentation) in a compliant and documented manner.

Practical benefit: for many HNW families, re‑sequencing and multi‑wrapper orchestration reduces annual tax leakage by £10k–£30k+ versus a single‑wrapper drawdown, often without reducing disposable income.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

The retirement tax landscape at a glance

This section lists the key allowances and rules you will base every decision on, both for saving towards your retirement as well as when eventually drawing down from those investments in retirement.

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Key income thresholds and allowances

Personal Allowance: £12,570 p.a. per person
- Protect it! When total income exceeds £100k, the Personal Allowance is tapered by £1 for every £2; until it reaches £0 at £125,140 – an effective 62% marginal band when national insurance is factored in on top. Use pension contributions and other forms of salary sacrifice to avoid this cliff.
- In retirement, use phased withdrawals to keep income-taxable drawdown below £100k each year.
Income tax bands (England & NI for 2025/26):
- 20% basic rate; 40% higher rate; 45% additional rate.
- In retirement, these determine the marginal cost of pension/ GIA/ bond events: small changes in taxable income can move you across bands with significant tax consequences.
Dividend allowance: £500 per person
Savings allowance per person:
- £1,000 (basic rate taxpayer), £500 (higher rate taxpayer), £0 (additional rate taxpayer).

Practical tip: Always start withdrawal planning by listing all taxable sources (rental income; realised gains; dividend income; taxable pension income). Tax bands and allowances should form the ‘frame’ for sequencing.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Capital Gains Tax (CGT)

Annual Exempt Amount: £3,000 per person
- Where possible use it every year – it cannot be carried forward.
Rates (recently increased):
- 18% within the basic rate band;
- 24% for gains above the basic rate band.
- That tightening increases the potential value that can be gained from annual CGT harvesting and ‘bed & ISA’ tactics.

What is ‘bed & ISA’?

Sell the investment outside your ISA
- You sell your shares, funds, or ETFs held in a general investment account (GIA) or similar.
- This sale may realise a capital gain — but you can use your annual CGT allowance (£3,000 in 2025/26) to minimise or eliminate any tax liability.
Repurchase the same investment inside the ISA
- Using the proceeds from the sale, you immediately repurchase the same investment within your ISA (or choose something else entirely).
- Once inside the ISA, all future growth and dividends are tax-free.

Practical tip: Small, repeated sales in General Investment Accounts – timed to use Annual Exempt Amounts and avoid income band creep – materially beat large once‑off disposals taxed at the higher CGT rate.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Pension allowances and crystallisation rules

Relevant primarily for Defined Contribution (DC) pensions

Annual Allowance: £60,000 (Tax relief is also limited to a maximum of 100% of relevant earnings in the year).
Tapered Annual Allowance:
- Occurs where threshold income exceeds £200,000 and adjusted income exceeds £260,000
- Allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.
Money Purchase Annual Allowance (MPAA): £10,000
- Triggered if you flexibly access your pension; avoid accidental triggers!
Tax‑free pension cash/ Lump Sum Allowance (LSA):
- 25% of the total value of your pensions, capped at £268,275
Lump Sum & Death Benefit Allowance (LSDBA): £1,073,100

Practical tip: After the removal of the Lifetime Allowance charge, one blunt cap was replaced with allowances and lump sum death‑benefit ceilings. Accessing the tax-free portion of your pension requires careful planning, as phased crystallisation can be more efficient than taking lump sums.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Individual Savings Accounts (ISAs)

ISA allowance: £20,000 per person
Growth and income on assets held within the ISA are free of Capital Gains Tax and Income Tax.
Withdrawals are tax free and do not count as taxable income – one of the most powerful levers in retirement sequencing.

Practical tip: Use ISAs to hold growth and yield assets that would otherwise generate taxable income in General Investment Accounts (GIAs) or pensions.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.

Onshore & offshore investment bonds

5% cumulative allowance per policy year: withdrawals up to 5% of capital investment (accumulative) are tax‑deferred (not tax‑free).
On a later chargeable event, gains are treated as savings income. ‘Top‑slicing’ relief may reduce the effective tax.
Segmentation (issuing multiple small bond segments) enables partial encashments without crystallising the entire bond.

Practical tip: Bonds are sequencing tools – excellent for smoothing when you want to avoid lifting marginal taxable income.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Trusts and their charges

Discretionary trusts carry entry charges, 10‑year periodic charges (up to 6%), and exit charges – all complex, but invaluable where control and estate planning are jointly required with income management.

Practical tip: Use bonds in trust to provide family controlled distributions while preserving beneficiary tax allowances.

Trusts are not regulated by the Financial Conduct Authority.

The strategic pivot: Pensions & IHT from April 2027

From 6 April 2027, most unspent pensions and many pension death benefits will be included within estates for IHT purposes.

This is a structural change: the once‑automatic IHT shelter provided by pensions will no longer be universally reliable.

Practical tip: Planning that relied on “leaving wealth in pensions forever” should be re‑examined. Sequencing may shift towards partial de‑risking and movement into ISAs/ trusts/ bonds where appropriate.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

State Pension

Often overlooked in drawdown, the New State Pension applies to men born on or after 6 April 1951, and women born on or after 6 April 1953.

New State Pension (full rate): £230.25 per week, or about £12,005 per year.

Qualifying years:

Minimum 10 years of National Insurance (NI) contributions or credits needed to receive any pension.
Full rate requires 35 years of qualifying contributions or credits.

Protected payments: If your earnings record from before April 2016 would give you a higher payout under legacy rules, you may receive that as a “protected payment” on top of the current full rate.

Deferral increases entitlement by ~1% every 9 weeks (~5.8% p.a.).

The “triple lock” policy guarantees the New State Pension will rise by the larger of: inflation (CPI), average earnings growth, or 2.5%. In 2025–26, the increase was 4.1%, based on average earnings growth from May-July 2024.

The government has launched the third review of the State Pension age, to determine whether pension age should be automatically linked to life expectancy, possibly raising it even further. The current plan already includes raising the age to 67 by 2027-2028 and to 68 by 2044-2046.

Arrange your no-obligation retirement planning conversation with an expert wealth adviser

Select date and time

The orchestration mindset: Principles and objectives

How high net worth households could avoid the retirement tax trap.

The objective: Provide for your target net-of-tax lifestyle, sustainably, while minimising total lifetime tax (Income Tax + CGT + IHT) and preserving estate optionality.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

‎

Principle 1. Start with spend, not pots

Build a 10- to 30-year plan, that models the net income required each year, stress tested for market downturns and longevity. This should account for irregular outgoings too, such as travel, contributing to school fees, property works, gifting, and care contingencies.

An expert financial adviser will use sophisticated cashflow modelling software that considers a variety of scenarios.

Principle 2. Segment capital by tax behaviour

Define which savings and investment pots are tax‑free, tax‑deferred, taxable and trust/ legacy oriented.

Tax-efficient: ISA
Tax-deferred: Pensions & Bonds
Taxable but manageable: GIA
Plus, those which are Trust-based to offer control & IHT shaping

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Principle 3. Sequence withdrawals to preserve low-rate bands

Use allowance‑rich pots first and leave taxable pots to years where other income is low;
Keep taxable income inside lower bands/allowances;
Harvest CGT each year without eroding core capital;
Maintain optionality for later-life and estate outcomes.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Principle 4. Split ownership of assets

Share key allowances between spouses;

Personal Allowance
CGT Annual Exemptions
Dividend allowances

…to avoid higher tax bands as individuals. Although, any transfer must be on an outright and unconditional basis.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Principle 5. Preserve optionality

Avoid locking all capital into illiquid or high-penalty structures.

For example, pensions generally cannot be accessed until age 55 (rising to age 57 in 2028), and now face potential double taxation inside estates for IHT purposes.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Principle 6. Annual discipline

Harvest allowances;
Move assets to ISAs when appropriate;
Re-sequence if income profile changes;
Crystallise gains;
Reset bond segments; and
Top up a 2-3 year cash bucket so markets don’t dictate tax timing.

Tax optimisation is allocation and timing: Think allocation (ISA vs GIA vs pension) and timing (year to year sequencing). For HNW households, a modest shift in timing often outperforms a risky, concentrated tax shelter.

Total-return beats income-only: Preferring high yields traps you in dividend tax bands and concentration risk. A total-return approach with controlled sales from the optimal wrapper gives cleaner tax and risk management.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Wrapper-by-wrapper: Deep dive and pro moves

What each wrapper really does, and how to use them. These are the rules, tactical moves, common pitfalls and pro plays for each wrapper.

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Pensions – the orchestration core

Core rules:

Up to 25% tax-free, but limited by LSA £268,275 (protections aside). Remainder taxed at your marginal rates.
Contributions: Annual Allowance £60k, taper from £260k adjusted income (min £10k). MPAA £10k if flexibly accessed.
Flexi-access drawdown vs UFPLS: both create taxable income beyond the tax-free element; beware Emergency (Month-1) tax on first payments; reclaim via P55/ P53Z/ P50Z.

What they do well:

Tax relief on eligible contributions;
Tax‑deferred compounding;
Structured death benefits (beneficiary rules).

Key constraints:

Taxable on withdrawal beyond PCLS/ LSA;
MPAA may restrict future contributions once flexible access is used;
PCLS subject to LSA cap;
2027 IHT inclusion looms.

Pro moves:

Earning between £100–£125k? Combine pension contributions and other salary sacrifice to reclaim or preserve Personal Allowance (effective 62% marginal relief zone).
Phased crystallisation:
- Crystallise small portions each year to realise up to 25% tax‑free cash (within LSA) and keep taxable income inside target bands.
- Preferred to large UFPLS where MPAA or rate spikes may occur.
PCLS-only first draws (where legally feasible) to avoid MPAA trigger in the short term. Document carefully.
Pension contributions as tax-band management: for those near the PA taper band, an extra pension contribution or Gift Aid top‑up can reduce adjusted net income, restoring PA or reducing marginal rates. (Use with caution and model liquidity.)

Common mistakes:

Emergency tax shock on first draw; plan cash and reclaim promptly.
Taking a large UFPLS early, triggering MPAA or pushing into 45% band. Can trigger HICBC/ benefit cliffs for under-retirement-age households.
Failing to segment crystallisations, losing LSA advantage or incurring unnecessary income spikes.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

ISAs – the retirement workhorse

Core rules:

Withdrawals are tax-free and don’t count as income for tax-band tests – ideal for smoothing income and avoiding higher-rate thresholds.
£20,000 p.a. use-it-or-lose-it allowance per person.

What they do well:

Tax‑free withdrawals;
Tax-efficient growth and income on investments within ISAs;
Do not count as taxable income;
Ideal for smoothing tax bands.

Pro moves:

Prioritise funding ISAs in accumulation years after covering tax‑efficient pension contribution needs.
Family pooling: two spouses = £40k p.a.
‘Bed & ISA‘ GIA assets each year to migrate yield/ growth into a tax-free silo.
Park high-yield or fast-growing assets inside ISA to silence tax drag.

Common mistakes:

Putting low‑growth or defensive assets into ISAs, while leaving high‑growth investments in pensions/GIA – match asset to wrapper strategically.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

GIAs – taxable but flexible

Purpose:

Flexible, taxable accounts used for CGT harvesting, dividend management and bridging between tax‑sheltered pots.

Pro moves:

Annual CGT harvesting: Crystallise up to £3,000 p.p. every year. Split across spouses for double allowance.
‘Bed & spouse’ transfers: Shift gains to the spouse with lower rates or unused allowances (watch out for 30‑day/ share-matching rules to avoid wash sales).
Prefer funds with accumulation units where dividend stuffing would otherwise create tax drag.
Target dividends within the £500 allowance; progressively migrate surplus yield into ISAs.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Onshore & offshore investment bonds – mastering deferral

Purpose:

Create tax-deferred cashflow via the 5% cumulative allowance – useful when you want spending power without lifting taxable income;
Top-slicing relief may mitigate a large one-off encashment if held many years;
Assignments (to spouse/trust) normally no gain/ no loss – can shift future gains to different taxpayers/structures;
Useful in early retirement or when deterministic withdrawals are required.

Design tips:

Segment policies at outset (e.g., 10–100 segments) to allow partial encashment without crystallising the whole bond;
Match bond type to tax profile: onshore has a basic-rate credit; offshore maximises gross roll-up but gains are fully income-taxed when they arise.

Pro moves:

Segment large bonds into multiple policies/ segments to allow partial surrenders;
Use top‑slicing relief modelling when planning a large encashment;
Assign to spouse or trust as part of intergenerational planning (assignment usually non‑taxable).

Common errors:

Treating 5% as tax-free (it’s deferred); always model the eventual chargeable event with future expected income bands;
Large future chargeable events can collide with high-rate bands or Personal Allowance taper.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Trusts – for control

Purpose:

Control, protection, and IHT management for surplus capital;
Ring‑fencing and bespoke distributions;
Useful when a retiree wishes to provide controlled family income without inflating personal taxable income.

Key charges:

Entry: 20% on value above available Nil-Rate Band (NRB) for discretionary trusts;
Periodic (10-year) charge: up to 6% above NRB;
Exit charges apply on capital appointments.

Where Trusts meet retirement income:

House surplus capital in trust (often using bonds) to deliver trustee-controlled distributions while ring-fencing from your personal bands/ means-tests.
Time trustee distributions around beneficiaries’ allowances (e.g., adult children in low bands).

Pro move:

Use trusts for pension death benefit holding where legislation permits (but seek legal advice).

Trusts are not regulated by the Financial Conduct Authority.

Obtain a no-obligation review of your retirement planning opportunities

Meet with an expert

Withdrawal sequencing playbook

Concrete algorithms and templates you can run each year, according to your household’s objectives.

An expert financial adviser will revisit your sequencing strategies each year using cashflow modelling; taking into account market fluctuations, tax allowances and reliefs, and your changing tax bands.

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Template A: Keep taxable income ≤ basic-rate band

ISAs first (withdraw tax‑free cash to meet most of the need).
Bond 5% allowances next (tax deferred).
GIA disposals up to CGT Annual Exemption.
Pension taxable draw only to fill remaining PA/ basic band headroom.

This maximises tax‑free draw, defers taxable draws until necessary, and avoids creeping into 40/ 45% income tax territory.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Template B: Materially zero-tax year

ISAs first;
Bond 5% allowances next (tax deferred);
Pension up to Personal Allowance only;
Harvest CGT Annual Exemption in GIA, but avoid creating dividend income beyond the £500 allowance.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Template C: Estate-centric pre-2027 reposition

Goal: Re‑weight pension‑heavy estates to reduce 2027 IHT exposure, without spiking marginal tax rates.

Cash & ISA top ups;
Phased crystallisation of smaller pension tranches to preserve PA and basic rate (not UFPLS lumps) to re-weight gradually from pension to ISA/ bond/ trust;
GIA to fund bed & ISA over multiples years;
Onshore bond assignment to trust where continuity of control is needed;
Life cover in trust to insure IHT if immediate migration impossible.Note: model run‑rate impact carefully; acting too quickly may crystallise gains or incur large income tax;
Maintain a cash buffer (2–3 years) to avoid forced selling in down markets, preserving tax control into 2027+.

Important: Your financial adviser should model the run‑rate impact carefully; acting too quickly may crystallise gains or incur large income tax.

Implementation algorithm (annual):

Forecast the next 24 months of required net spending (base and irregular);
Project all expected non‑portfolio income (state pension, rental, interest);
Run the sequencing template to meet net spend, while keeping taxable income within parameters;
Update ISA/ CGT harvest/ segment bond decisions for each tax year;
Rebalance, migrate high‑return assets into ISAs if room, and reset bond segments.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Example case studies

These examples show the numerical effect of sequencing. All examples are simplified and illustrative, will not be suitable for everyone and do not constitute advice. An expert financial adviser can show more precise outcomes through cashflow modelling. Investment risk, sequencing, spend patterns and wrapper history will alter outcomes.

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Example A: £80,000 lifestyle with minimal/ zero tax

Two spouses age 60 and 58 target £80,000 annual expenditure.

Asset breakdown:

Pensions: £900k (uncrystallised)
ISAs: £450k
GIAs: £500k
Offshore bond: £300k (10 segments)
Cash: £50k

Annual drawdown plan (year 1):

Withdraw £40,000 from ISAs (untaxed)
Withdraw £15,000 from offshore bond (5% allowance of £300k, tax deferred)
Each crystallise pension income equal to Personal Allowance of £12,570, using PCLS to fund the tax‑free portion (zero taxable income)
Realise £6,000 in gains from GIA (utilising annual exemption)
Earn dividends up to £1,000 (utilising allowances); migrating high-yield positions into ISAs over time.

Net result:

~£80k cash flow with negligible/ zero current-year income tax; no CGT; bond withdrawals deferred; pensions largely untouched and compounding.

Why it works:

Layering tax‑free and tax‑deferred withdrawals plus spouse allowances to avoid higher bands.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Example B: £1m pension single drawdown (hidden leakage)

Single age 62 targets £80,000 gross from their pension alone.

Income tax:

First £12,570 at 0%;
Next slice at 20%;
Next slice at 40%
Typical tax bill £20k-£25k+ p.a. (exact amount depends on other income).

At this rate the pension could run out entirely in less than 20 years, assuming 5% net growth. A quarter of the pension pot is lost unnecessarily to income tax.

This is avoidable if part-funded from ISA/ bond/ GIA to cap marginal rates and preserve allowances.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Example C: £1m portfolio capping lifetime tax exposure

Asset breakdown:

Pensions: £450k
ISAs: £250k
GIAs: £200k
Onshore bond: £100k

Strategy:

Years 1-5:
- Withdraw from ISA (tax free);
- Withdraw £5,000 from onshore bond each year (5% allowance of £100k, tax deferred)
- Crystallise pension income equal to Personal Allowance of £12,570 each year
- Harvest £3k CGT (within annual exemption) via GIA each year
Years 6-10:
- Phase pension crystallisations to keep within basic rate band (20%), avoiding higher income tax rates where possible;
- Make gifts from surplus income
Estate planning considerations:
- Review pension nominations and possible bypass/ discretionary trust strategies for death benefits;
- Consider writing a life cover plan in trust to meet an eventual IHT liability;
- Gradually re-weight across wrappers.

Outcome:

Materially lower lifetime income tax and lower projected IHT exposure vs a pension-only draw.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Example D: Significant one-off cash is needed (e.g. renovation)

Strategy:

Split across two or more tax years if possible;
Use ISA first;
Use bond encashment with top-slicing analysis (consider partial segment surrenders);
Pension: crystallise tranches to maximise PCLS and keep taxable slice within target bands;
GIA: realise gains up to CGT annual exemptions across both spouses.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

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Advanced strategies for HNW households

Phased crystallisation with PCLS routing

Crystallising small pension tranches each year (taking tax‑free element where available, and only taxable as needed) reduces marginal tax spikes and preserves MPAA headroom. Document precisely for HMRC (dates, amounts).

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Bond segmentation and top-slicing

Issue multiple small bond segments (or purchase multiple small policies) to aid partial surrenders and preserve the 5% allowance across different policy anniversaries. When a larger encashment is required, estimate top‑slicing relief to reduce the effective tax rate.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

If the withdrawals taken exceed the growth of the Bond, the capital will be eroded.

Trustee distribution engineering

Trustees can smooth distributions to beneficiaries so the household uses beneficiaries’ PA and lower bands, preserving the settlor’s tax bands and potentially keeping the settlor’s taxable income low (subject to trust tax rules).

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

A measured approach to lifetime gifting

Where wealth exceeds long‑term needs and IHT is a concern, measured regular gifting (within the normal expenditure out of income rules) can reduce estate exposure without incurring IHT charges. Keep precise records – to prove regularity to HMRC.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Your tax trap checklist

Before your first withdrawal

Decide on draw type (phased PCLS and income vs UFPLS).
Avoid MPAA trigger unless unavoidable.
Confirm tax code to avoid Emergency (Month-1) tax shock.
Factor in other income (rent/dividends) to avoid band creep.
Coordinate spouse allowances (PA/ Dividend/ CGT).

Annual actions

Max usage of ISA allowance (£20k p.p.).
Harvest Capital Gains up to annual exemption (£3k p.p.).
Review dividend flows vs £500 p.p. allowance.
Rebalance risk and refill cash reserves.

Estate planning factors

Model 2027 pension-IHT exposure; review death-benefit nominations and potential trust structures.
Review Wills/ LPAs; keep pension expressions of wishes current.
Consider a life plan in trust to meet anticipated IHT liability.
Keep robust gift records (rules may change over time).

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Will writing and LPAs involve the referral to a service that is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.

Integration with portfolio design

Total-return orientation with factor & geographic diversification;
Asset location (what sits where):
- ISA: growth and high-yielding assets;
- Pension: equities for long runway (tax-sheltered compounding);
- GIA: tax-efficient funds/ETFs; prefer accumulation units only when they don’t create dividend tax drag beyond allowance;
- Bond: lower-volatility sleeves to stabilise 5% withdrawals.
Rebalancing: set hard ranges; use flows to minimise CGT.
Costs: consolidate legacy plans where sensible; monitor ongoing charges and platform fees.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

DIY vs Professionally Advised: The Drawdown Pay-Off

When entering retirement, the decisions you make around how, when, and from where you draw your income can add – or subtract – hundreds of thousands of pounds from your future wealth.

Retirees who ‘go it alone’ often underperform – not because of poor investment returns, but because of suboptimal drawdown sequencing and missed opportunities.

Apollo Private Wealth orchestrates every moving part: income sourcing, wrapper sequencing, tax harvesting, inflation protection, and estate planning – producing materially better financial outcomes over the long term.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

‎

The four biggest DIY mistakes

Front-loading pensions

The problem:

Many DIY investors take the majority of income from pensions first, triggering unnecessary income tax at 40%+ and eroding future compounding potential.

Apollo’s advantage:

Apollo blends ISAs, GIAs, pensions, and bonds intelligently to minimise tax drag and maximise portfolio longevity.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Overlooking allowance stacking

The problem:

DIY retirees often underuse the CGT annual exemption, dividend allowance, and personal savings allowance – meaning they overpay HMRC every year.

Apollo’s advantage:

Apollo engineers an “allowance-maxing” waterfall that uses every relief available.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Sequence-of-returns risk

The problem:

Withdrawing from growth assets after a market crash can lock in permanent losses – a risk many DIY retirees are blind to.

Apollo’s advantage:

Apollo applies buffer strategies and dynamically switches wrappers to protect growth assets until recovery.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Underestimating longevity

The problem:

Many retirees overspend in the early years or fail to inflation-proof later spending, risking depletion. Assets are eroded quickly by unnecessary taxation, rather than continuing to compound.

Apollo’s advantage:

Apollo stress-tests against 100+ scenarios (inflation spikes, recessions, policy changes) to maintain sustainable drawdowns.

How we add value to every £1 withdrawn:

Tax Alpha → Saving £100,000s+ over decades

Behavioural Alpha → Avoid panic-selling, stick to plan

Sequencing Alpha → Reducing portfolio depletion risk

Legacy Alpha → Integrated estate strategy more wealth passed on to your beneficiaries

Would you like us to build your bespoke retirement strategy?

Obtain personalised recommendations with no obligation

The art of retirement drawdown isn’t picking a single ‘best’ pot. It’s orchestrating all of your pots – year by year – to spend well, stay in low bands, and keep options open as rules evolve (not least the 2027 pension-IHT shift). Get the sequencing right, and you keep more of your money – every year for the rest of your life.

SJP Approved 10/09/2025

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Starting the new tax year on the right footing

For busy professionals, the smartest wealth decisions happen in April – not next March. Here’s why.

If you’re a high-earning professional, your time is at a premium. Between work, life, and everything in between, financial planning often slips down the list – until deadlines loom. But when it comes to building and protecting your wealth, timing matters.

This guide outlines the key allowances available for the 2025/26 tax year and explains why acting early (with the right support) can generate significantly better outcomes than leaving things to the last minute. Best of all? We do the legwork for you – so you can focus on what you do best.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

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What are the key tax allowances and reliefs for 2025/26?

ISA and JISA Allowances

£20,000 per adult
£9,000 per child

ISA and JISA Allowances reset each tax year, on a use-it-or-lose-it basis. Invest in cash, stocks & shares, or a blend. Enjoy flexible access for mid-term goals. Both growth and withdrawals are free of income and capital gains tax.

St. James’s Place do not offer cash ISAs or JISAs.

Pension Annual Allowances

Up to £60,000, or 100% of relevant earnings, per adult
Up to £3,600 for non-earners, including children

Pension Annual Allowances reset each tax year, but in some cases, you can carry forward unused allowances from the previous three years. Benefit from tax relief at your marginal rate of income tax. Growth is also tax free, and withdrawals can be made tax efficient.

When sacrificing your salary, you could mitigate an effective 60% rate of tax on income between £100,000 and £125,140.

Your Pension Annual Allowance may be tapered, if your ‘threshold income’ exceeds £200,000 and your ‘adjusted income’ exceeds £260,000; the reduction in allowance halts when ‘adjusted income’ exceeds £360,000, setting the annual allowance to a minimal £10,000 for pension savings that receive the full benefit of tax relief.

Capital Gains Tax Exemptions

£3,000 per person, including children

Capital Gains Tax Exemptions reset each tax year on a use-it-or-lose-it basis, and apply to everyone, whether adult or child, earning or not.

It is crucial to capitalise on the CGT Exemption when rebalancing your portfolio, or exiting positions, to realise gains in the most tax efficient way.

A financial adviser can also help you with tax loss harvesting – an investment strategy for generating capital losses to gain a tax advantage.

Dividend Allowances

£500 per person, including children

Dividend Allowances reset each tax year on a use-it-or-lose-it basis, and apply to everyone, whether adult or child, earning or not.

Particularly relevant for company directors, and for investors, utilising Dividend Allowances can provide a small additional tax-free income.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Why acting now, rather than in March next year, could yield thousands.

For busy professionals, the smartest wealth decisions happen in April – not next March. Leaving everyone else to scramble at the 11th hour of the tax year end deadline, you’ll have already taken control, and put your capital to work from day one.

More time in the market = greater potential for growth
Time in, not timing the market. The earlier you invest, the longer your money benefits from tax-efficient compounding. Example: Investing £20,000 into each ISA in April, instead of next March, could add £1,200+ to your long-term returns, based on 6% net annual growth. Do that year after year, and the difference compounds into five figures.

This figure is for illustrative purposes only. You may get back more or less than the figure shown. How your investment grows will depend on the fund choices made, the taxation of the funds selected and the charges attributed to your plan.
Less stress, better strategy
Trying to rush through financial decisions next March, meeting deadlines at the same time as juggling end-of-Q1 pressure at work, means crucial planning could get missed – rarely resulting in the best outcomes. Starting early gives you time to plan your cashflow, and space to think thoroughly about your investment decisions; supported by an expert financial planner, who curates your approach according to your unique goals and objectives in life.
Proactive utilisation of all the tax allowances and reliefs available to you and your family
By starting early, you can allocate pension contributions according to regular income, plan lump-sum investments around bonus and maturity dates, and engage your spouse and children in taking a holistic approach to your family’s finances.

We make it effortless.

Our core expertise is in helping time-poor professionals – investment bankers, lawyers, consultants, founders – take full advantage of every tax planning opportunity, with zero hassle. Benefit from;

A dedicated, expert Private Wealth Adviser, who remains your single point of contact and understands your unique requirements
Support from your Adviser’s team of qualified Associates, Paraplanners and administrative staff – working tirelessly to bring your financial objectives to life
A bespoke strategy report each year, complemented by advanced cashflow modelling and scenario planning

Your holistic financial roadmap will also encompass important frameworks for preserving your wealth, asking questions like;

Is your insurance coverage (e.g. critical illness, key person) sufficient, based on your lifestyle and that of your dependents?
What is your mounting inheritance tax liability, and how can your estate be structured to enable as much of your wealth as possible to be passed on to your beneficiaries?
Do your investments remain suitable for your objectives over time? Is there a rebalancing need? And most of all, is the asset location optimal for tax efficient accumulation?

The Value of Advice

Start by creating your action plan today.

Let’s Get Started

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Legacy Planning Redefined: Navigating the new Inheritance Tax landscape for Pensions

Pensions set to be brought inside of Estates for Inheritance Tax (IHT) purposes from April 2027

One of the most surprising announcements in Labour’s first Budget, was the Chancellor’s decision to subject pensions to Inheritance Tax (IHT). This policy reverses George Osborne’s 2015 decision to exclude pension pots from an individual’s Estate for IHT purposes. Although this change won’t take effect until 2027, it has already faced criticism as a “cruel blow” for grieving families.

This guide will outline the key changes and actions you can consider.

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What’s changing?

Currently, private pensions are not counted as part of an Estate, and are free from Inheritance Tax. If you inherit a private pension from someone who died aged 75 or older, you’ll pay income tax on it; however, if they died younger than 75, it’s tax-free, unless taken as a lump sum after two years.

From April 2027, pensions will be counted as part of the Estate. This shift might deter individuals from saving into their pensions.

When Osborne initially allowed pensions to be passed on tax-free, it was part of broader reforms, including scrapping the 55% charge on certain inherited pensions. Along with Jeremy Hunt’s abolition of the pension Lifetime Allowance (LTA), pensions became an attractive legacy planning tool. Now, however, the Government says it is “removing the opportunity for individuals to use pensions as a vehicle for Inheritance Tax planning.”

The Government has opened a consultation on implementing this change, as experts warn of complex administration challenges.

Families may need to rethink their Estate planning under this new policy.

It’s worth noting that pensions left to a spouse or civil partner remain inheritance tax-free. The inheritance tax spousal exemption allows married couples and civil partners to transfer their estate to one another tax-free upon death. In contrast, benefits passed to an unmarried partner may be subject to inheritance tax. Surviving unmarried partners could face reduced income and, as a result, a lower standard of living in retirement.

Explore your options, with a no-obligation financial planning consultation.

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Double taxation

Families may now face an effective 67% rate of tax on inherited pension funds following the rule changes; with a ‘double hit’ from the combined effects of Inheritance Tax and Income Tax.

The removal of the Inheritance Tax exemption effectively imposes a double tax on death benefits that don’t qualify for an Income Tax exemption, particularly for those who pass away after age 75. When the entire pension fund is subject to 40% Inheritance Tax, and beneficiaries are then taxed at their marginal rate of Income Tax on the remaining amount, this can lead to a combined tax rate of up to 67% on the pension’s death benefits.

Even basic-rate taxpayers could face a 45% marginal rate of Income Tax, depending on how they choose to withdraw the funds. Beneficiaries may choose between receiving a lump sum or ongoing income, which affects their tax rate. For example, a lump sum might push them into a higher tax bracket. These changes could leave families with less than a third of the original pension pot.

Key planning actions

Drawing the tax-free Lump Sum Allowance

Despite pre-Budget speculation, the Lump Sum Allowance (LSA) remains consistent, at one quarter of the previous LTA, or £268,275.

Withdrawing the LSA and using it during one’s lifetime, to fund spending, or make gifts to family members, could offer an efficient way to reduce the value a pension subject to Inheritance Tax.

Usual gifting rules apply; for instance, surviving seven years from making the gift.

Gifting

One could gift part of their pension pot to avoid the added levy. Regular income gifts may also help you avoid the seven-year rule: for example, taking £50,000 from drawdown each year, but only spending £30,000, allows you to gift £10,000 annually to a child’s pension or a grandchild’s ISA if done regularly and without diminishing your lifestyle.

Relocating into tax wrappers

Some savers may choose to withdraw from their pensions and pay income tax, to reallocate the funds into tax-efficient vehicles like ISAs. The decision comes down to a trade-off: either keep funds in your pension, or withdraw and pay tax to invest them in a more tax-efficient structure. Obviously each person’s circumstances will differ.

Still have questions?

Following the biggest set of tax increases in modern history, it’s an opportune moment to evaluate your family’s financial situation and objectives.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

SJP Approved 07/11/2024

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Paying For Private School Fees: Start Planning Early And Optimise For Tax Efficiency

Introduction

More children than ever before are attending private schools for a higher quality education, smaller class sizes, more abundant resources, and specialised academic and vocational programmes. The number of pupils attending private school has steadily increased over the past decade, with a record 556,551 pupils now attending 1,411 Independent School Council (ISC) member schools across the UK, the highest level since records began in 1974.¹

However, giving your children the best possible education comes at a cost, and the expense was already a barrier for many families – before the application of VAT to school fees from January 2025.

While the cost of tuition fees can vary widely depending on the school and location, sending your child to a private school as a day pupil had cost, on average, £23,925 per year, rising to £42,459 for pupils who board.² However, fees at some private schools can be considerably higher. Unless your school has absorbed some of the increasing costs, the application of VAT at 20% brings the average day fee to £28,710, and the average boarding fee to £50,951.

1, 2 ISC Census and Annual Report, January 2024

At a glance

Parents could face around £460,000 in day pupil fees or £815,000 in boarding fees for each child.
ISAs and Investment Bonds can be used as tax wrappers to save towards school fees, potentially making tax-efficient or tax-deferred returns on your investment.
Unit Trusts and General Investment Accounts (GIAs) may also provide access to investing in various asset classes, with tax treatment dependent on individual circumstances.

Take Your Autumn Statement Impact Assessment

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Average boarding school fees to hit £50,000 per year

Taking a tax-efficient approach to saving towards private school fees…

Let’s assume that school fees increase by 3.5% a year. This would be the lowest increase seen over the course of a 14-year education, particularly in comparison to an 8% uplift from 2023 to 2024. Based on the average costs, parents could face around £460,000 in day pupil fees or £815,000 in boarding fees for each child.

However, while these figures are considerable, the sooner you start saving towards your child’s school fees, the better.

By starting early, saving regularly, and investing, parents could build up a substantial sum over time to help cover the costs of private education.

Taking a tax-efficient approach to school fees can help make private education much more accessible.

Key tax-efficient solutions

Individual Savings Accounts (ISAs)

An ISA is a tax-efficient investment vehicle that enables parents to put aside a certain amount each year, without incurring any income or capital gains tax (CGT) on the interest or investment returns earned on the savings.

If both parents make monthly contributions that fully utilise their ISA allowance (£20,000 per person in the 2024/25 tax year) from the child’s birth, this could accumulate to a sum of £585,000 by the time the child is 11 years old, based on 5% net annual growth after fees, compounding monthly.* Withdrawals from an ISA are tax efficient, so parents can extract funds as needed to pay for school fees without incurring any capital gains or income tax liability, or invest in other options, such as stocks and shares.

*These figures are examples only and they are not guaranteed – they are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment.

The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.

On- and Offshore Investment Bonds

An Investment Bond is a tax-efficient investment wrapper that allows parents to save and invest to pay for private school fees. An Investment Bond invests in a range of assets, such as stocks, shares, bonds, and funds. You can invest a lump sum or make regular contributions.

During the term of the investment, returns earned within the bond are not subject to income or capital gains tax (CGT), providing significant tax savings over the long term with the option to draw down up to 5% of your original investment per year on a tax-deferred basis. As the 5% allowance is cumulative, any unused allowance is carried forward for up to 20 years.**

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

**Please note that if the withdrawals taken exceed the growth of the bond, the capital will be eroded.

Unit Trusts and General Investment Accounts (GIAs)

Unit Trusts and General Investments Accounts (GIAs) pool capital from multiple investors into a single fund, which is then invested across various asset classes, such as stocks, bonds, and property. Investors benefit from an annual dividend allowance of £500 in the 2024/25 tax year, and an annual capital gains allowance of £3,000 in the 2024/25 tax year.

Howver, Unit Trusts and GIAs are subject to income tax on any dividends or interests earned, which can reduce the overall tax efficiency of the investment. The tax treatment of these investments can also vary depending on personal circumstances, such as income level and tax bracket.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Gifting Allowance

Under current UK tax law, individuals can give up to £3,000 per year to another person using their annual gifting exemption, including a child or grandchild attending a private school. If you are married or in a civil partnership, you can combine this with your partner’s allowance, resulting in a total annual gifting exemption of up to £6,000 per year.

This offers a tax-efficient way to pay for private school fees. However, financial gifts above £3,000 can be subject to inheritance tax (IHT) if the donor dies within seven years of making the gift. The current nil-rate band for inheritance tax is £325,000 per person.

If a parent has adequate disposable income, this may be utlisied to pay for education costs (including private school fees) under ‘Dispositions for the maintenance of the transferor’s children’ rules.*** A disposition is not a transfer of value for IHT purposes if it is made by one party to a marriage or civil partnership and is both:

– in favour of a child of either party and
– for that child’s maintenance, education or training for a period not ending later than the year ending 5 April in which the child attains the age of 18, or
– after attaining 18, ceases to undergo full-time education

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

***Further criteria applies within the HMRC IHT Manual IHTM04175 which is subject to change.

Scholarships and Bursaries

Many private schools offer means-tested bursaries to help with the cost of tuition. A third of pupils in private education receive means-tested bursaries,³ which can cover up to 100% of fees.

Bursaries are awarded based on financial need, and can be a valuable way for families who may not otherwise be able to afford private school, to access high-quality education for their children. The amount of the bursary awarded is based on a means test, which considers a family’s income, assets, and other relevant factors.

Scholarships are typically awarded based on merit, such as academic or athletic achievement, musical talent, or artistic ability. Scholarships may not cover the full cost of tuition. The proportion of fees covered will depend on the school and the type of scholarship offered.

³ ISC School Fee Assistance, April 2023

Paying in advance

Paying private school fees in advance can be a way to save money on the overall cost of tuition. Many private schools offer discounts to parents who pay tuition fees in advance, with the size of the discount increasing with the size of the advance payment.

However, parents considering paying fees in advance should carefully weigh the potential gains against the risks associated with tying up a significant amount of capital in pre-payment.

Depending on the investment chosen, there may be potential for higher returns than the discount offered for advance payment, but there is also a risk of capital loss.

Navigating a myriad of options

Private school education can provide children with a vital head-start and opportunities that help them to achieve their goals. However, it’s undoubtedly an expensive commitment, and navigating the options for paying private school fees can be complex and daunting.

Many options are available, including tax-efficient investments, bursaries and scholarships, pre-payment of tuition fees, and a range of capital drawdown routes. It’s important to carefully consider your options and obtain expert advice when planning and funding private school fees.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time, and are generally dependent on individual circumstances.

Services

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Britain has entered a new era of even higher taxation

A tax system ratcheting up every year until 2031

A direct hit on pensions and long-term investment

Wealth and savings hit hard: ISAs, dividends and property income

With thresholds frozen until 2031 and tax rises on savings, property, and dividend income, before then, proactive planning with a wealth adviser is essential.

Property owners and investors hit with two critical tax whacks

Stealth Inheritance Tax (IHT) as it is frozen for even longer

Business owners and entrepreneurs see investment incentives cut

Yet more Capital Gains Tax hikes

Other announcements

Has anything been spared tax increases?

Future outlook and planning

Still have questions?

Obtain support from an expert financial planner.

UK economic picture

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Your complete guide to preserving family wealth for 2025/26

Read this 1-min snapshot first

What’s changed and what’s coming

Arrange your no-obligation estate planning conversation with an expert wealth adviser

The 11 fundamental principles to mitigating unnecessary inheritance tax eroding your family’s wealth

Pulling it together: Three mini case studies

Your next 90 days (action list)

Arrange your no-obligation estate planning conversation with an expert wealth adviser

Should you require more information or have particular questions, we invite you to contact us at your convenience.

A high net worth guide to investing for retirement; then drawing down tax efficiently

The retirement tax landscape at a glance

Arrange your no-obligation retirement planning conversation with an expert wealth adviser

The orchestration mindset: Principles and objectives

Wrapper-by-wrapper: Deep dive and pro moves

Obtain a no-obligation review of your retirement planning opportunities

Withdrawal sequencing playbook

Example case studies

Sound like a lot? Save time with our help

Advanced strategies for HNW households

Your tax trap checklist

Integration with portfolio design

DIY vs Professionally Advised: The Drawdown Pay-Off

The four biggest DIY mistakes

Would you like us to build your bespoke retirement strategy?

Should you require more information or have particular questions, we invite you to contact us at your convenience.

For busy professionals, the smartest wealth decisions happen in April – not next March. Here’s why.

Save time – receive a no-obligation financial plan, tailored to your circumstances.

What are the key tax allowances and reliefs for 2025/26?

Why acting now, rather than in March next year, could yield thousands.

We make it effortless.

Start by creating your action plan today.

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Pensions set to be brought inside of Estates for Inheritance Tax (IHT) purposes from April 2027

Take Your Autumn Statement Impact Assessment

What’s changing?

Explore your options, with a no-obligation financial planning consultation.

Double taxation

Key planning actions

Still have questions?

Should you require more information or have particular questions, we invite you to contact us at your convenience.

Introduction

At a glance

Take Your Autumn Statement Impact Assessment

Average boarding school fees to hit £50,000 per year

Key tax-efficient solutions

Navigating a myriad of options

Should you require more information or have particular questions, we invite you to contact us at your convenience.

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