ISA tax break falls for first time in four years

The value of tax reliefs designed to encourage saving and investment in the UK rose by just 2.5% to £45.5bn in 2025/26, the slowest annual increase in four years, new research has revealed.

The increase was sharply lower than the previous year, when the cost of the reliefs to the government jumped 17% from £37.9bn to £44.4bn, according to findings from Bowmore Financial Planning.

The slowdown was most evident in individual savings accounts (ISAs), where the cost of tax relief fell for the first time in four years, dipping from £9.8bn to £9.7bn. That compares with average annual growth of 24.2% over the previous four years.

Tax relief on pension contributions rose 3.7% to £33.5 billion, below the average annual increase of 6.6% recorded over the same period.

Bowmore managing director Gill Millen said investors should make full use of available tax breaks, arguing that recent Budgets have steadily reduced incentives for personal saving and investment.

"It is vital that investors take advantage of all the tax reliefs and savings available to them," Millen said. "Previous Budgets have shown that the direction of travel is to reduce these tax breaks.

"Maximising tax reliefs and tax savings can help investors shield their wealth from future tax rises. There has been a wave of tax increases in recent years, and this trend could continue."

Several changes are due to take effect over the coming years. The annual cash ISA allowance will be cut from £20,000 to £12,000 from April 2027, venture capital trust income tax relief will fall from 30% to 20%, and pension pots will become subject to inheritance tax from the same date.

From April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will remain exempt from national insurance contributions (NIC). Employee and employer contributions above that threshold will become liable for the charge.

The changes are expected to cost individuals £807 million a year, according to a Treasury estimate obtained through a Freedom of Information (FOI) request.

Millen said employees using salary or bonus sacrifice arrangements should consider boosting pension contributions before the NIC changes come into force.

"Employees in defined contribution workplace pensions should consider increasing the pension contributions they make through salary and bonus sacrifice before the NIC savings available are reduced," she added. "There may be substantial tax savings available between now and 2029."



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