What does the 2026 Budget mean for savers and investors?

Chancellor John Healey’s recent Budget was billed beforehand as a relatively low-key affair, and on the whole, it lived up to expectations. Nonetheless, it left savers and investors with food for thought – and some clear indications as to where the government wants us to channel our spare cash.

So how will the savings and investment regime change, and what should we bear in mind as a consequence?

What has changed?

The Budget includes measures designed to deter savers from keeping large sums in taxable savings accounts. The rate of tax on savings interest above the personal allowance was already scheduled to rise by 2 percentage points in April 2027, and that has now doubled to 4 percentage points. That means basic rate taxpayers will pay 24% rather than 20% on taxable savings interest, while the rate for higher rate and additional rate taxpayers rises to 44% and 49% respectively.

The Chancellor has also pulled off an interesting about-turn on ISAs. The proposed £12,000 cap on cash ISA contributions that was due to take effect in April 2027 has been cancelled, leaving ISA investors free to continue allocating their money as they wish between cash and stock market investments.

What stays the same?

The Budget made no changes to income tax or personal allowances. The overall ISA allowance also stays at £20,000 per year, as it has since 2017.

Similarly, capital gains tax will not be raised, as had been feared by some commentators. Nor is there any further increase in the dividend tax due above the £500 personal allowance. That offers some stability for investors with holdings outside their ISAs and therefore potentially liable to these taxes: at least they are not facing increases.

What’s coming?

The government has said it will work with industry to explore a new 'Starter ISA' incentive for first-time stock market investors, with the aim of encouraging cash ISA savers to take the plunge into the stocks and shares alternative.

Details have yet to be worked out between government and industry, including what form the reward for first-time investors will take. One idea, put forward by Martin Lewis, is a governmental cash incentive on a new investor’s initial investment, alongside the broader ISA attractions of tax-free capital growth and income over the years.

Why the government wants to encourage a shift into the markets

It’s clear that the government remains keen for ISA holders to consider stock market investment as well as cash savings. The thinking is that stock markets have historically offered superior returns over the long term, which matters if people are to support themselves through a post-working life that could last several decades. Cash savings are great for short-term projects and emergencies, but regardless of whether tax is paid on it, the interest on cash deposits can struggle even to keep up with the rising cost of living over the years, which means your money can lose value in real terms.

To put this into context, research has found that £1,000 held in an average savings account over the 20 years from 2004 to 2024 would have the spending power of less than £600 after that time, simply because of the erosive effect of inflation.

In contrast, while stock markets are inherently unpredictable and your investment is very likely to fall in value in the shorter term at some point, over the course of many years markets tend to rise and, importantly, to outpace inflation.

The same research found that £1,000 in a diversified portfolio of UK investments would have gained more than 20% in real purchasing terms over those two decades. Past performance is not a guide to future returns.

What this means for you

Everyone’s circumstances are different, but here are the main points for savers and investors to bear in mind:

• If you hold cash outside an ISA: the higher tax rate on savings interest from April 2027 makes the tax-free ISA wrapper more relevant. The Personal Savings Allowance, which is unchanged at £1,000 for basic rate and £500 for higher rate taxpayers, still applies.
   

• If you use an ISA: the £20,000 allowance is unchanged and the proposed cash ISA cap has been cancelled, so you can still choose how to split your allowance between cash and investments.

   

• If you invest outside an ISA: capital gains tax and dividend tax rates are unchanged, which provides some stability.

   

• If you’re new to investing: the Starter ISA is on its way, but the details are yet to be confirmed, so it’s worth keeping an eye on developments.

   

• For everyone: investing involves risk. The value of investments can fall as well as rise, and you may get back less than you invest.

   

Where might investment trusts fit?

For those considering the stock market investing, investment trusts are one option, including for those who may be relatively new to investing. These are companies listed on the stock market that pool investors’ money to invest in a range of assets, and they are designed with long-term investing in mind.

Trusts can offer diversification geographically, by sector, across different parts of the market and by asset class. For investors looking to spread their investments across different countries and regions, global investment trusts provide one way to gain exposure to companies around the world. Murray International Trust, for example, invests globally, with its managers seeking companies across a range of markets that they believe offer attractive long-term potential.

The way investment trusts are structured also means they can hold back a proportion of the income they receive each year from underlying companies. These reserves can then be used to top up dividend payments in leaner years, although dividends are not guaranteed.

As with any investment, there are risks to consider. Investment trusts can borrow to invest (gearing), which can magnify losses as well as gains, and their share prices can trade at a discount or premium to the value of their underlying assets.

Things to bear in mind

The Budget leaves the tax-free ISA allowance intact, keeps the choice between cash and investments open, and signals more support for first-time investors through the Starter ISA. If you’re thinking about how to use this year’s ISA allowance, or waiting to see the Starter ISA details, it’s worth considering your own goals, time horizon and appetite for risk. If you’re unsure, consider seeking professional financial advice.

Important information
Risk factors you should consider prior to investing:

• The value of investments and the income from them can fall and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.
• If you require advice, please speak to a qualified financial adviser.

The Murray International Key Information Document can be obtained here.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG, authorised and regulated by the Financial Conduct Authority in the UK.

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