UK Tax Year 2026/27: ISA and Pension Allowances

ISA Allowances 2026/27

Individual Savings Accounts (ISAs) provide tax-free savings — no Income Tax on interest, no CGT on gains, no Dividend Tax on income within the wrapper. The 2026/27 allowances:

The rule allowing multiple ISAs of the same type in a single year (introduced April 2024) continues in 2026/27. You can spread contributions across several providers.

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Pension Annual Allowance 2026/27

The Annual Allowance (AA) limits total pension contributions before a tax charge applies:

• Standard Annual Allowance: £60,000 (unchanged from 2025/26)
• Minimum after tapering: £10,000 (for very high earners)
• Money Purchase Annual Allowance (MPAA): £10,000 (if pension flexibly accessed)

Total contributions = employee contributions + employer contributions + government tax relief added to your pot.

Carry forward

Unused AA from the previous 3 tax years can be carried forward, provided you were a member of a registered pension scheme:

This is particularly useful for business owners, those receiving large bonuses, or individuals who've taken a career break with minimal contributions.

Tapered Annual Allowance

For very high earners, the AA tapers from £60,000 down to £10,000:

• Threshold income (before employer contributions): above £200,000
• Adjusted income (including employer contributions): above £260,000
• Taper: AA reduces by £1 for every £2 of adjusted income above £260,000

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Pension Tax Relief 2026/27

Tax relief on pension contributions remains one of the most powerful features of the UK savings system:

Salary sacrifice is additionally efficient: contributions are made before NI, so employees also save 8% NI (and employers save 15% NI). For a 40% taxpayer using salary sacrifice:

Cost of £1,000 contribution = £1,000 − 40% IT − 8% NI = £520 (vs £600 via SIPP)

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The Coming IHT Change: April 2027

This is the most significant pensions policy change of the decade and requires action during 2026/27.

Current rules (until April 2027)

Unused defined contribution (DC) pension pots sit outside the estate for IHT purposes. On death before 75, the pot passes tax-free to named beneficiaries. On death after 75, beneficiaries pay income tax at their marginal rate — but there is no IHT charge.

This makes DC pensions extremely IHT-efficient: you spend other assets first, leaving the pension pot to grow and pass on outside the estate.

From April 2027

DC pension pots will be included in the estate for IHT. The combined estate (property + assets + pension) will be assessed against:

• Nil Rate Band: £325,000
• Residence Nil Rate Band: £175,000 (where applicable)
• Spouse/civil partner exemption (unlimited)

Any excess is taxed at 40% IHT.

Who is most affected?

For couples, the spousal exemption means the immediate IHT impact on first death is limited. But on second death, the combined estate (including pension) goes to children at 40% on the excess.

Actions to consider in 2026/27

1. Review beneficiary nominations: ensure your pension nominations are up to date — nominations determine who receives the pot (it does not follow your Will)
2. Consider drawing pension earlier: under current rules, spending taxable non-pension assets first and leaving the pension untouched maximises IHT efficiency. From 2027, this logic changes — drawing and spending from the pension may become preferable
3. Consider lifetime gifting: use annual gifting exemptions (£3,000/yr) and potentially PETs (potentially exempt transfers) to reduce estate value now
4. Revisit trust arrangements: placing assets in trust can remove them from the estate — though HMRC is tightening trust rules too

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Lump Sum Allowance (Tax-Free Cash) 2026/27

When you access a pension, you can take a tax-free cash lump sum — historically known as the 25% pension commencement lump sum (PCLS). From April 2024, the lifetime allowance was replaced by two new limits:

• Lump Sum Allowance (LSA): £268,275 maximum tax-free lump sum across all pension arrangements
• Lump Sum and Death Benefit Allowance (LSDBA): £1,073,100 maximum for lump sums including death benefits

Both are unchanged for 2026/27. You can still take up to 25% of most pension pots as a lump sum — but once you've taken £268,275 in total across all pots, any further lump sums are taxed as income.

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ISA vs Pension 2026/27: Which First?

The arrival of pension IHT from April 2027 shifts the calculus:

The revised strategy for 2026/27 and beyond:

1. Always maximise employer match in workplace pension first — free money
2. Use salary sacrifice for pension to save NI
3. For IHT planning: ISAs become more attractive as they can be gifted or spent during lifetime without IHT consequence, while the pension is now less efficient as a legacy tool
4. Those with very large pension pots (above NRBs when added to estate) should seek advice on the 2027 change

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