Recent media reports that ‘income for life’ annuities are making a comeback show how savers are recalibrating their savings in response to tax changes. In this article, we consider the current state-of-play for savers, what could happen next, and how an Independent Financial Adviser can help you make long-term savings that stays resilient – whatever the government decides to do with taxes.
More UK savers set to pay tax
More than two million UK savers are expected to pay tax on interest received in the 2024-25 tax year, figures show, a significant leap from just 647,000 people who did so in 2021-221.
The main reason for this is that, for several years, frozen tax allowances have kept the personal savings allowance at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. As wages increase but tax bands remain the same, more people are being pulled into higher tax brackets.
ISA reform incoming?
On top of the fiscal drag caused by frozen tax allowances, the prospect of a major ISA shake-up is changing the situation for many savers.
As the Treasury seeks ways to raise more money, rumours have been swirling that the ISA allowance could be changed in the Autumn Budget later this year.
Currently, savers can contribute £20,000 across cash, stocks and shares, and other ISA types. However, the Chancellor is reportedly considering a cap on cash ISA savings, in an attempt to get more savers investing rather than holding cash2.
Tax updates on the horizon
Amid these possible changes, ‘income for life’ annuities, which swap a pension lump sum for a guaranteed annual income, are seeing renewed enthusiasm from savers looking for a safer bet.
Indeed, impending tax changes add to the appeal of annuities. From April 2027, defined contribution pension pots will be included in estates’ inheritance tax liabilities. This means that savers won’t be able to pass on pension pots tax free as easily.
Another tax update on the horizon is a change that will allow HMRC to tax savers at source when they exceed personal savings allowances. From April 2027, savings providers will be required to ask new and existing customers for their National Insurance numbers, making it easier for the tax authority to deduct tax without waiting for high-earning savers to submit a self-assessment form.
Time to make a tax-efficient savings plan
Faced with possible tax changes, the best way savers can respond is to make a tax-efficient savings plan. For long-term success, speak to an Independent Financial Adviser (IFA) who can guide you through everything you need to know about maximising ISA savings and using pensions wisely.
Ahead of planned changes to how savings are taxed, advisers can help review tax codes, address HMRC warnings, and navigate direct PAYE collection changes. Tools like annuities, trusts, or gifting strategies could also form part of a balanced tax-efficient savings plan.
We have our finger on the pulse
At S4 Financial, we use cashflow modelling to offer bespoke financial planning solutions that can bring you peace of mind and better long-term results. We also constantly track the latest changes to ensure all financial decisions are optimised to the current and future legislative landscape.
If you want to understand how tax changes could affect your savings, ISA or long-term pensions plans, get in touch today.
1FT Adviser, 2025
2The Guardian, 2025