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Resolution’s Finance, Pensions and Tax Committee has analysed the Autumn Budget delivered on 26 November and highlighted several changes that may affect financial settlements, maintenance arrangements and long-term planning for divorcing couples. Family lawyers should be aware of the following headline points.
Income tax
While Income Tax rates on employment income remain unchanged, the Personal Allowance and higher and additional rate thresholds will be frozen for a further three years, remaining in place until 2031. This fiscal drag will pull more clients into higher tax bands, which may be particularly problematic where maintenance is indexed to RPI or CPI but net income does not rise in line with inflation. Practitioners may wish to consider indexing spousal maintenance to net income instead in appropriate cases.
The Government is also introducing higher tax rates for property, dividends and savings income:
• Dividend tax for ordinary and higher rate taxpayers will increase by two percentage points (to 10.75% and 35.75%) from 6 April 2026
• Savings income tax will rise by two percentage points for all taxpayers from 6 April 2027 (to 22%, 42% and 47%)
• A new property income tax rate, aligned with savings income (22%, 42% and 47%), will apply from 6 April 2027, with finance cost relief provided at 22%
Where clients derive a substantial proportion of their income from investments or rental property, practitioners should take care when calculating net income for negotiations and affordability assessments.
Benefits
The two child cap on means tested benefits will be abolished from 6 April 2026. Where clients with three or more children are receiving or could receive Universal Credit, the increase in household income should be factored into settlement discussions. Spousal maintenance receipts remain classed as unearned income for Universal Credit and will reduce entitlement pound for pound.
Council Tax and household budgeting
From April 2028, a new high value council tax surcharge (commonly referred to as a Mansion Tax) will apply to properties worth more than £2 million. Homes in this bracket will face an annual surcharge of £2,500, rising to £7,500 for properties above £5 million. Budgets for higher value cases may need adjusting.
Lawyers should also note:
• the extension of the 5p fuel duty cut to September 2026
• reductions in average household energy bills
• a new excise duty on electric vehicles from April 2028
Pensions
From April 2029, salary sacrifice for pension contributions will be capped at £2,000. Contributions beyond this will be taxed as normal employee contributions without National Insurance savings. This may affect the ability of parties to rebuild pensions efficiently after pension sharing orders.
The Government will maintain the Triple Lock, with State Pension payments rising by 4.8% from April 2026. Inheritance tax on pension benefits nominated for cohabiting partners will be introduced in April 2027, while nominations to spouses and civil partners will remain exempt.
Inheritance Tax
The forthcoming £1 million allowance for Agricultural Property Relief and Business Property Relief will be made transferable between spouses and civil partners. For couples separating later in life who hold qualifying assets, the potential loss of this transferable relief should be considered alongside any tax efficient alternatives to divorce.
ISAs
From April 2027, the overall annual £20,000 ISA allowance remains unchanged, but only £12,000 may be invested in Cash ISAs. Clients over 65 are exempt from this restriction.
Previously announced measures taking effect from April 2026
Practitioners should also be mindful of earlier Budget measures due to commence next year:
• Carried interest will fall fully within the Income Tax regime, affecting clients whose remuneration includes significant carried interest
• The CGT rate for Business Asset Disposal Relief and Investors’ Relief will rise to 18%
• Wide reforms to Agricultural Property Relief and Business Property Relief are expected to accelerate intergenerational wealth transfers, potentially increasing the relevance of pre and post nuptial agreements and non matrimonial property arguments
Given the complexity of these changes, practitioners should continue working closely with clients’ accountants and financial advisers when constructing settlements, particularly in cases involving investment income, pensions or significant assets.
