Looking beyond 2026/27: The hidden impact of deferred tax changes
The changes happening in the 2026/27 tax year are only part of a much broader story.
Short-termism is a criticism often directed at politicians, and not without reason. However, they are far from unique in their focus on getting through the next twelve months rather than considering the longer term. The frenetic flow of news across all types of media tends to shorten all our horizons as well as attention spans.
In this age of hyperfocus, those same short-termist politicians have found it useful to defer the start of difficult changes, such as tax increases. What is announced in a Budget in year one may not take effect until year four, by which time the Chancellor – or even the government – might have been replaced. In a world where Rachel Reeves’ fiscal rules are tested using economic projections for 2029/30, there are clear attractions to the back end loading of tax rises, as the practice is sometimes described. However, this approach can potentially create problems for financial planning.
Diverted attention
A good example is the freeze to the personal allowance and income tax thresholds, which was extended for another three years to April 2031 in the Autumn 2025 Budget. That may seem too distant to worry about, but it raises the odds that if you are a basic-rate taxpayer today, you will be a higher-rate taxpayer in the future.
If you have a company car, those odds increase further because the benefit-in-kind charges for most cars are stepping up each tax year until 2029/30. The largest impact falls on electric-only vehicles (0g/km CO2), with the scale charge more than doubling between 2026/27 and 2029/30.1
On pensions, the last Budget also included a change to salary sacrifice rules that is not due to take effect until April 2029. But before that, April 2028 brings an increase to 57 for the normal minimum age at which pension benefits can be drawn, another measure announced long before its implementation.
It is hard to keep abreast of all the revenue-raising tax changes waiting in the wings that various chancellors have scattered across future tax years, which is why experts can really make a difference when it comes to long-term planning.
The Financial Conduct Authority does not regulate tax advice. Tax treatment varies according to individual circumstances and is subject to change.
Occupational pension schemes are regulated by The Pensions Regulator.
Source
May Bulletin 2026
This insight is part of our May Bulletin 2026. Explore all the articles:
