Budget 2026 and planning what you leave behind

If you have spent years building up savings, it is easy to focus on the tax you pay during your lifetime. What happens to those savings when you die deserves just as much attention.

The Budget on 28 October 2026 included announcements affecting cash ISAs, pension death benefits and the taxation of trusts. Here is what those announcements could mean when you next review your estate planning.

Cash ISAs and your estate

The Government in the latest Budget has dropped the planned reduction in the cash ISA limit. From 6 April 2027, savers will continue to be able to subscribe up to the full £20,000 annual ISA allowance to a cash ISA. People under 65 will not be restricted to the previously proposed £12,000 cash limit.

The £20,000 limit is the overall annual allowance across the different types of ISA. Cash held within an ISA remains free from Income Tax on the interest it earns.

When an ISA holder dies, the value of the ISA is still taken into account when calculating the value of their estate for Inheritance Tax purposes. Whether Inheritance Tax is payable will depend on the value of the estate, the allowances and exemptions available, and who inherits. If you have built up substantial ISA savings, they should therefore be included when reviewing the potential Inheritance Tax position.

A change for pension death benefits

Under the existing rules, certain pension death benefits may become taxable if the pension scheme member died before reaching the age of 75 and the benefit is not paid within two years of the scheme administrator becoming aware of the death.

The Government in the latest Budget has announced that it will legislate to remove this two-year tax rule for payments made on or after 28 October 2026. A qualifying benefit will therefore no longer become taxable solely because it is paid outside the two-year period. For lump sum death benefits, the deceased member must still have sufficient lump sum and death benefit allowance available.

This is an Income Tax change. Separately, for deaths occurring on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the value of the deceased’s estate for Inheritance Tax purposes. That change has already been legislated for, although exclusions apply to certain benefits, including death-in-service benefits from registered pension schemes.

When reviewing your pensions, check your beneficiary nominations as well as your Will. Depending on the pension scheme, a nomination may guide the scheme administrator or trustees rather than bind them, and the scheme’s own rules will determine how benefits can be paid.

Higher tax rates for trusts

From 6 April 2027, the rates applying to taxable savings and property income received by trustees will increase. Accumulated or discretionary savings and property income will generally be taxed at 49%, rather than 45%. Savings and property income received by interest in possession trustees will generally be taxed at 24%, rather than 20%.

These changes do not apply uniformly to every type of trust income. Dividend rates are unchanged, and a 45% trust rate will continue to apply to certain other accumulated or discretionary income.

Special rules also apply to some trusts.

For an interest in possession trust, the beneficiary’s own tax position must also be considered. The rate paid by the trustees does not necessarily represent the beneficiary’s final tax liability.

Higher rates may leave less trust income available for beneficiaries. Trustees should review the likely tax cost alongside the purpose of the trust, its investments and the needs of its beneficiaries.

The Budget also announced proposed changes to the Inheritance Tax treatment of liabilities connected with property held in trust. The changes are intended to clarify when liabilities properly incurred by trustees may be taken into account, while preventing arrangements from producing unintended Inheritance Tax deductions. Trustees and individuals whose arrangements involve trust borrowing should take advice on how the detailed rules may apply.

What to review

• Make an up-to-date list of what you own, including your home, savings, investments and pensions.
• Check who would receive each asset and whether that still reflects your wishes.
• Review the value and composition of your estate alongside the wording of your Will and any trust arrangements.
• Keep a clear record of your accounts, investments and pension providers somewhere your executors can find it.
• Before making a lifetime gift, consider what you may need for yourself, including unexpected expenses and possible care costs.

How we can help

Our Private Wealth and Succession team can help you review your Will, Pensions and wider Estate Planning, and understand how the Budget announcements may affect you and your family. Get in touch to arrange a no obligation conversation with one of the team.