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“American journalist Matt Taibbi once described big banks as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Today, many investors may feel the same way about the Treasury under the Labour Government.

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“Chancellor Rachel Reeves’s Autumn Statement is shaping up to be another exercise in tax-raising, with pensions highly likely to be in the firing line. She is widely expected to seek new ways of extracting revenue from those who have worked hard, saved diligently and built capital from already-taxed income. Reeves has already said pensions will be subject to Inheritance tax (IHT) from April 2027, but further changes to the taxation of pensions may well come in sooner. All is not yet lost. Those who act early can still lock in today’s generous allowances and reliefs.”

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Four key steps to consider before 5 April 2026:

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1. Maximise current contributions

For every £100 net contributed by a basic-rate taxpayer, the government automatically adds £25 of tax relief (20 per cent of the gross contribution), giving a total contribution of £125. However, higher and additional-rate taxpayers can benefit even more by claiming up to a further 25 per cent of tax relief through their self-assessment tax returns. Funds then grow free of income tax and capital gains tax, with benefits available from age 55 (rising to 57 from 2028).

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2. Make use of carry-forward relief

The so-called annual allowance – the amount you and an employer can invest in your pension each year to qualify for tax relief without incurring a tax charge – is currently £60,000. If you haven’t made the most of all of this allowance in recent years, you still can because rules allow you to ‘carry forward’ unused allowances from the previous three tax years. This means that a total gross contribution of up to £200,000 could be made this year if earnings permit and prior allowances are unused.

*High earners should also be aware of the tapered annual allowance, which can reduce the limit to as little as £10,000 if adjusted income exceeds £260,000.

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3. Company contributions and the “wholly and exclusively” test

Entrepreneurs and owner-managers often take modest salaries, but they can use employer contributions to pensions as an efficient form of remuneration. Employer payments are typically deductible for corporation tax, enabling directors, again potentially using carry forward, to make significant pension contributions without drawing large taxable salaries or dividends.

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4. Junior pensions – invest for children and grandchildren

Parents and grandparents can help give their children and grandchildren a pension head start by saving on their behalf – and they can benefit themselves at the same time too. You can put a maximum of £2,880 into a pension for a child each year and the government will add £720 in tax relief, boosting the annual value to £3,600. Contribute the maximum into a pension for a child until they are 18 (an outlay of £64,800), and they could have accumulated a pension pot worth more than £1m by the time they retire.* And you benefit too, as your net annual contribution falls below the £3,000 gift limit for IHT.

*Assuming no further contributions and a 5% annual growth rate, by age 65

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The tax-free cash (TFC) debate

The impact on those with larger pensions would be significant. Many who have diligently saved with the intention of using tax-free cash to pay down a mortgage or fund retirement lifestyle choices would feel penalised. Any change to the TFC allowance should therefore be tapered over time to allow people to adjust their plans fairly.

For those concerned both with IHT and with a potential reduction in the level of TFC, one strategy is to crystallise the tax-free cash now and transfer it into a trust, assuming the funds are not needed for personal retirement

• A transfer of up to £325,000 (the Nil Rate Band) can be made into a discretionary trust without immediate IHT liability, provided no other gifts into discretionary trusts have been made in the previous seven years

• After seven years, the funds fall outside the settlor’s estate for IHT purposes

• Trust assets may be subject to exit charges or 10th anniversary charges, known as periodic charges, but these are currently modest — typically 6% on the value above the Nil Rate Band

• With careful multi-trust planning, these charges can often be reduced or eliminated entirely

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Written by James Scott-Hopkins, Founder, EXE Capital Management

Article quoted recently by Jeff Prestridge in the Daily Mail, Jeff's full article can be found here: https://mol.im/a/15081343

The views are those of the author only. The above does not constitute a recommendation to conduct specific financial planning as advice must be sought on an indivdual basis from your financial advisor as to the appropriateness of any solution for yoru cirucmstances. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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