SBWM

Investment markets reacted sharply to Donald Trump’s Iran ‘excursion’ in March, but over the quarter there was not as much change as the headlines might have made you believe.

2025 was generally a good year for investment markets with the UK putting in a notably good performance – the FTSE 100 was up more than a fifth over the year, beating both Europe and the US in local currency terms. 2026 started off in a similar pattern, with expectations that interest rates would continue to drift down in many countries and that inflation, if not dead, was unlikely to be a great concern. By Friday 27 February, as the table above shows, most markets had risen above their closing levels in 2025. Japan was the standout performer, thanks to the snap election success of their new Prime Minister, Sanae Takaichi. 

Then, on 28 February, the US-Israel war with Iran started.

For several months, the US had been building what Donald Trump labelled ‘an armada’ in the seas around Iran, action which prompted a rise in the oil price to a little over $70 a barrel. However, the timing of the attack was a surprise, which deeply unsettled investment markets, as was evident when trading resumed on Monday 2 March. The remainder of the month was a largely downward path, interrupted by brief rallies when it appeared that a decisive change of mind by Trump might prevail. By the end of March and the first quarter, with oil over $100 a barrel, a clean resolution looked unlikely.

Stand back a little and look at investment markets’ performance across the quarter and the picture is not quite as you might imagine:

• While equity markets fell in March, the falls were mostly matched by the increases in January and February. If you are one of those people who only look at quarterly valuations, you might not even register the ‘exciting’ three months that have passed.
• Gold, the classic safe haven, investment, proved anything but. Its dollar price fell by 10.3% in March, although over the quarter it gained 7.7%. 
• Arguably, the rise in oil prices had the greatest effect on government bond markets, as bond investors loathe inflation. The UK gilts market was among the hardest hit, which bodes ill for a government that plans to borrow over £250 billion in 2026/27.

The first quarter of 2026 has provided plenty of noise – and a reminder that the short-term cacophony can be just a little deafening. 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Just how much is tax disincentivising you? The latest Economic and Fiscal Outlook from the Office for Budget Responsibility (OBR) had some disconcerting words to share.

Published alongside the Chancellor’s Spring Forecast in early March, the OBR provided a sober projection of gross domestic product (GDP):

“The tax-to-GDP ratio is forecast to increase to a post-war high of 38.5 per cent of GDP in 2030/31. And many marginal tax rates – of relevance to incentives to work, save and invest – are much higher. A higher level of the tax take increases the risk that incentives within the tax system constrain economic activity by more than expected.”

As is often the case with the OBR’s words of wisdom, they need some translation:

• The tax-to-GDP ratio is a measure of the tax burden on the UK economy. In effect, the government will be taking 38.5p of every £1 the economy generates in four years’ time – the highest rate in modern times.
• Marginal tax rate is the effective rate of tax you pay on the extra £1 of income or capital. This can be much higher than the ‘normal’ tax rates and, in extreme situations, can be over 100%. 
• Incentives within the tax system distort or constrain economic activity by more than expected. If you face a high marginal rate of tax, for example, on additional earnings, then you might feel inclined not to accept the promotion that will give you that extra income or choose to work fewer hours at the higher pay rate. 

A good example of what the OBR is concerned about can be found at the £100,000 income level. Crossing that threshold means:

• A gradual loss of the personal allowance, equating to a marginal tax rate on earnings of 60% (67.5% in Scotland) up to £125,140 of total income. Add in national insurance (2%) and, for many graduates, student loan repayments (9%), and out of every marginal £1 over £100,000 there could be only 29p (21.5p in Scotland) left to spend.
• Entitlement to tax-free childcare, worth up to £2,000 per child is lost. So too is entitlement (other than in Scotland) worth up to 30 hours of free childcare.

The OBR plans to “conduct further analysis of UK marginal tax rates” this year, but given revenue pressures, the chances of reform look slim. Better look to your own tax planning. 

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.  

Bricks and mortar are not always a sure-fire winner.

From January 2016 to January 2026, did house prices grow faster than inflation? The answer is in the graph.

Nationwide Building Society says the average UK house price in January 2016 was £196,829. Ten years later, it had risen to £270,873, a 37.6% increase. Over the same period, the Consumer Prices Index (CPI) increased by 40.2%.

If the result is not what you expected, it could be because you remember the unexpected boom during and immediately after the Covid-19 pandemic, but forgot the difficult period for house prices that followed. In the three years from January 2023, the average house price rose by 4.9%, while the CPI added 10.4%.

Ironically, some of the recent slowdown in house price growth is linked to general inflation. One factor that put the brake on house prices was the increase in interest rates made by the Bank of England to bring down inflation (which peaked at over 11% in October 2022). Until June 2022, the Bank of England rate was no more than 1%. As anyone facing the imminent expiry of a five-year fixed rate mortgage knows, the Bank’s action on interest rates, now compounded by the Iran war, has made borrowing considerably more expensive than half a decade ago.

The near flatlining of house prices and, until recently, cuts to mortgage rates did make life marginally easier for first-time homebuyers. That has not been good news for one group of existing property owners: buy-to-let investors. Zoopla, the property website, reported that at the start of the year, average enquiries per rental property were at their lowest level since 2019 and down a fifth on January 2025. Reduced demand has translated into slowing rental growth, which has come down from 7.8% annual growth in January 2025 to 3.1% a year later, according to data from the Office for National Statistics. In England, buy-to-let investors are also facing the implementation of the Renters’ Rights Act, which from 1 May 2026 will put an end to no-fault evictions (‘section 21 orders’). 

Buying and owning your own home generally remains a sensible move, but be wary of treating it as the only investment you need to make. 

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested.

Past performance is not a reliable indicator of future performance.

Were you born after 5 April 1960? 

There can sometimes be a long period between when legislation becomes law and when it takes effect. The delay is often due to the legislation being only a broad framework to which a raft of detailed regulations is subsequently attached. However, there are instances where a protracted run-in is a deliberate feature. Such is the case with the State pension age (SPA) provisions in the Pensions Act 2014.

These put into law a phased one-year increase in SPA to 67 for men and women born after 5 April 1960, beginning in April 2026 and ending two years later. At the time the Act was passed in May 2014, the SPA for men was 65 and 62 for women, on the way to an equalised SPA of 65 in March 2016. Thereafter, both men and women saw another year added gradually to their SPA, taking it to 66 in November 2018. 

Unsurprisingly, the increases to SPA were – and still are – controversial. To dampen further criticism, the government said that it would provide at least ten years’ notice of any rise in SPA – hence the 12-year time lag for the Pensions Act 2014 change.

While there is a good case for giving a decade’s warning of an increase to SPA, it comes with a risk that the assumptions underlying the original announcement prove to be wrong by the time it takes effect. Unfortunately, this is the case with the latest SPA increase:

• In 2014, the then latest (2012-based) life expectancy projections from the Office for National Statistics (ONS) were that a man aged 66 in 2018 would live for 21.1 years and his female counterpart would survive another 23.7 years. The corresponding projections for men and women aged 67 in 2028 were 21.3 years and 23.8 years, justifying the one-year increase in SPA to 67 by that point.
• In 2026, the ONS life expectancy projections (2022-based) for 67-year-olds in 2028 are 18.6 years for men and 21.1 years for women.

That is a 2.7-year shorter life expectancy between the two sets of projections for both sexes. Sadly, life expectancy has not improved as rapidly as the ONS expected back in 2012.

One more reason for planning your own retirement date, rather than defaulting to the State’s choice.

New research reveals that five million mid-lifers, aged 40–54, face a difficult retirement.

The retirement landscape in the UK has changed significantly over the last 50 years:

• In 1978, the State pension moved from what was largely a flat rate benefit to a combination of flat rate and, for employees only, earnings-related State pensions.
• Over the years, the earnings-related element underwent a variety of changes, mostly benefits (and government costs) until in 2016 it was replaced by a new flat rate benefit.
• Final salary (defined benefit – DB) pension schemes were widespread in both the private and public sector in the 1970s and 1980s, with personal pension plans largely limited to the self-employed.
• Years of attrition followed, and by 2025, only 3% of private sector DB schemes were still accepting new members, while about three-quarters were no longer accruing benefits for their existing members.
• From October 2012, automatic enrolment (AE) in workplace pensions was phased in, reaching a final steady state from April 2019. Workplace pensions of various types now cover about four-in-five employees and other workers, but not the self-employed.

From that history emerges a theoretical gap for those who started their working lives roughly in the fifteen years from the turn of the century. Outside the public sector, most would not have joined a final salary pension scheme, and some would have had low or even no pension scheme membership until they joined a workplace pension, thanks to the phasing in of AE. 

New research undertaken by one of the UK’s major pension providers has discovered that the theory is very much a reality. It found a generation of people born between the early 1970s and late 1980s who were too young to benefit from DB schemes, but also too old to feel the full benefit of AE. Five million of the mid-lifers, currently aged 40–54, are not on track for an adequate retirement. Of that 9% of the UK adult population worst at risk are part-time workers, renters and those who have taken a career break. 

The research did offer some hope for a way out of the pension mid-life crisis: start putting more into retirement plans now, as there are at least 13 years before State pension age arrives. 

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

A House of Lords committee has been highly critical of the government’s proposals on inheritance tax (IHT) and pensions. 

Cynics might expect members of the House of Lords to have more than a passing interest in the Chancellor’s plans to bring unused pension funds within the scope of IHT. Whether or not that view is fair, a House of Lords Economic Affairs sub-committee has been examining the relevant legislation contained in the current Finance Bill. Their Lordships were not impressed, noting that “…significant work remains to ensure that these measures work in practice for personal representatives”. 

In a report published at the end of January, the sub-committee made an extensive list of recommendations, including:

• The six-month IHT payment deadline for personal representatives (PRs) should be extended to 12 months for tax on pension assets for a transitional period, while pension scheme administrators update their processes. 
• Unless the final regulations (and related guidance that cover sharing of information between administrators and personal representatives) are available by April 2026, “it is not sensible or appropriate to bring the changes into effect in April 2027”.
• More work needs to be undertaken to help executors find pensions belonging to the deceased. As the report notes, the sub-committee was told that “identifying pension assets is already challenging in life…There is no reason to presume that identifying all pension assets will be any easier for PRs on death”. As currently designed, the long-promised Pensions Dashboard will not give access to PRs, nor will it initially include any pensions that have been placed into income drawdown. 
• The sub-committee observed that “there appears to be a low level of awareness of the change to the IHT treatment of pensions” and called on the government to launch an awareness campaign “with links to possible sources of further information to help individuals make informed decisions about their future arrangements”.
• The treatment of dependants’ pensions varies between different types of pension scheme in a way which the sub-committee saw as going “beyond the stated objective of stopping the use of pensions for tax planning”. 

If you have any pension plan, ahead of April 2027, you should seek advice about how it could affect your estate planning. After the embarrassing late U-turn on IHT agricultural relief, the government will be reluctant to make any similar changes to pensions and IHT. 

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice. 

The 6th April brought a variety of changes to the tax rules.

The start of the tax year (Monday 6 April) heralded a variety of changes to tax and pension rules, few of them welcome.

Dividend tax 

The rate of tax on dividends will increase by two percentage points if you pay tax at basic rate (8.75% to 10.75%) or higher rate (33.75% to 35.75%). The additional rate tax on dividends remains unchanged at 39.35%, as does the dividend allowance at just £500. 

Making Tax Digital (MTD) for income tax 

This starts to operate for the self-employed and landlords who have qualifying income (broadly gross income) from both sources that exceeded £50,000 in 2024/25. MTD will require you to submit quarterly returns of income and expenses to HMRC using approved software. 

Inheritance tax (IHT) reforms 

The new rules for agricultural and business IHT reliefs come into effect. Following changes announced in the Autumn 2025 Budget and two days before Christmas, the 100% relief allowance will be a combined £2,500,000 and will be transferable between surviving spouses and civil partners. 

Venture capital trusts (VCTs) 

The rate of income tax relief for the high risk investments will drop from 30% to 20%. At the same time, the size of companies covered by the scheme will double.

Capital gains tax (CGT) 

The rate of CGT on gains that qualify for business assets disposal relief will rise from 14% to 18%. Other rates of CGT remain unchanged, as does the annual exemption at £3,000.

National insurance contributions (NICs) 

If you work or live abroad, then you will not be able to pay voluntary Class 2 NICs (£3.65 a week) to accrue UK State pension for 2026/27 and subsequent years. You may be eligible to pay Class 3 NICs, but the cost is much higher at £18.40 a week.

State pension age (SPA) 

The phasing in of a new SPA of 67 will begin in April 2026. If you were born between 6 April 1960 and 5 March 1961, then your SPA will increase to between 66 years 1 month and 66 years 11 months. If you were born on or after 6 March 1961, your SPA will be at least 67.

If you would like more information on how any of these changes could affect you, please get in touch. 

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.  

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested.

Past performance is not a reliable indicator of future performance. 

Are you missing out on tax relief for your pension contributions? 

A ‘Supplementary forecast information release’ from the Office for Budget Responsibility (OBR) on ‘Costing of charging NICs on salary sacrificed pension contributions’ may sound like a cure for insomnia. It is certainly not short of acronyms beloved of pension nerds, such as OpRA, RAS and ASHE*. However, deep in the cocktail of jargon, economic modelling and behavioural analysis was an interesting assumption.

In working out the extra revenue that would flow to the government from changing the rules for salary sacrificed pension contributions from 2029, the OBR said “The costing assumes that 10 per cent of higher-rate and additional-rate relief from RAS schemes is unclaimed, which is lower than is assumed in the overall population …. This leads to a permanent increase in receipts, of an estimated £0.2 billion in 2030/31”.

You would be forgiven if you think this OBR-speak needs a little translation. Relief at source (RAS) schemes are pension schemes under which your personal contributions are made net of basic rate tax, regardless of your actual tax rate. For example, £100 of gross contribution involves making a net outlay of £80, with the £20 basic rate relief claimed by the pension provider. Personal pensions are RAS schemes, as are some workplace pension schemes, notably NEST, which has over 13 million members.

The RAS approach gives instant automatic basic rate tax relief – even to non-taxpayers – but if you pay tax at more than basic rate, you need to claim the extra relief due from HMRC. Using the same £100 gross contribution example, if you are a higher rate taxpayer, you would receive £20 basic rate relief immediately and claim the balance of your tax relief (£20, or £22 if you are a Scottish higher rate taxpayer) from HMRC, either by contacting them directly or via your self assessment return. 

What the OBR is saying is that, in practice, more than one in ten people currently do not make that claim, to their personal disadvantage, but to the benefit of the Treasury. That could be for a variety of reasons, including the fact that a frozen higher rate tax threshold has dragged many former basic rate taxpayers into the higher rate club.

If you think you might be one of those unwittingly helping the Chancellor, a simple starting point is to check with your financial adviser. 

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. 

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.  

* OpRA = Optional Remuneration Arrangements; RAS = Relief At Source; ASHE = Annual Survey of Hours and Earnings

As a means of drawing income in retirement, annuities have made a comeback, and for good reasons. 

In 2014, the then Chancellor (and now podcaster), George Osborne, pulled a rabbit out of the Budget hat that nobody had seen coming. He announced the ending of the effective requirement for personal pension plans to be converted into an annuity in retirement.  Osborne’s ‘pension freedoms’ came as a shock to pension providers and a near-death experience to insurance companies active in the annuity market. Share prices in the life assurance sector plummeted as the inevitable question was asked, “Who will buy an annuity now?”

As the graph shows, pension annuity sales fell from nearly £7 billion in 2015 to £4 billion in the following year, and then flatlined until recovering in 2023. That was when annuity rates recovered from historically low levels, thanks to an increase in long-term interest rates. The latest annuity sales figures, for 2025, have recently been released by the Association of British Insurers (ABI), showing that £7.4 billion was invested last year – £0.5 billion more than in 2014. Adjust for inflation – about 40% cumulatively since 2024 – and annuity sales are still well down in real terms. 

The ABI data revealed some interesting trends:

• Sales of annuities with purchase prices of over £250,000 rose by 31%, while sales above £500,000 increased by 54%.
• There was an 8% rise in sales of annuities to those aged 70 and older.
• Escalating annuities, under which payments increase each year, attracted a tenth more sales than in 2024, accounting for one in five of all annuity sales. 

The jump in higher value sales could be the first signs of a response to the plans to bring unused pension pots into the ambit of inheritance tax (IHT). From 6 April 2027, if death occurs on or after age 75, the effective tax rate on the unused pot could be 64% (40% IHT and then 40% income tax) or more. Faced with that level of tax and the associated complexities of managing income drawdown and the estate administration, an annuity offering guaranteed income for life (and no death benefit) has clear attractions. For a 65-year old, at present that income could start at over 5.25% and rise in line with the retail price index (RPI) inflation each year. 

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. 

Tax treatment varies according to individual circumstances and is subject to change.

The Financial Conduct Authority does not regulate tax advice.